China: "un-investable" or "buy everything"… which is it?

China's stocks have been on a wild roller coaster ride in the last two weeks on hopes of stimulus in that country but has the investment Outlook in China really changed let's ask two China ETF experts Dave matah is CEO of roundhill Investments and has just launched a new China ETF and Jason Sue is founder and chairman of rant Global advisors which focuses on investing in China and Emerging Markets Dave you launched the Magnificent 7 ETF a year and a half ago boy that was perfect timing and last week you essentially launched a a China version

of The Magnificent 7 ETF I know you're calling it The China dragons ETF nine of the largest and most Innovative Chinese companies I want to talk about that later but despite these stimulus hopes that we talking about in China the stocks in China the indexes are trading at the same levels they were 17 years ago in 2007 17 years ago with no gains is there any argument to be made that China is suddenly a better investment now than it has been in the last 17 years no you're absolutely right if you look in the rear

viw mirror China's been a really difficult Market to invest in it's been dead weight in portfolio your point it's really moved nowhere but what's important to know about China is again second largest economy in the world second largest Equity Market in the world so we don't believe investors should actually uh ignore this part of an overall portfolio particularly in light of the fact that the Chinese economy is is certainly one that is dynamic growing but it faces challenges what's different now is that the Chinese authorities at this point are putting in a huge amount of

stimulus to date it's only been on the monetary side focus on the stock market but there's expectations for a lot more especially on the fiscal side and the structural reforms that can really make this Market more inket going forward Jason the same kind of question to you the S&P 500 is up 270% since 2007 China stocks the index is essentially nowhere zero so C can you explain to the to the viewers why has China been such a disastrous underperformer on a on a global level and is anything happening here including these vague stimulus hopes that

would would change that poor performance so Bob first and foremost this is the difference between a efficient market and an inefficient Market the US is very efficient so you're going to do just fine holding the Magnificent 7 you know the S&P 500 but for China you need to actively manage your portfolio mix right if you just buy the index you will experience a lot of volatility a lot of ups and downs but really no positive trajectory that's because you need to constantly rebalance your portfolio aiming your portfolio in the direction of where the stimulus spending

might be in a particular fiscal cycle aiming your trajectory in where the industry is going and they very volatile industry rotations in China had you done all of that you actually would have uh experienced uh quite a nice right in a more actively managed portfolio now talking about actively managing it in the direction of stimulus uh I think David is absolutely right uh the Chinese government is now spending two reming B in the first trun and it's expected to go up to about 10 trillion by the time they're all set and done and in fact

they've signal there's no upper limit to how much they'll throw at the economy to make sure it grows at 5% real GDP Target and I think that that's quite exciting right the government is telling exactly what it is going to do and this Saturday it's going to tell you in fact where the money is actually being aimed toward and you just have to in a way follow the government's money right it's like we used to say follow the FED don't fight the FED in this case follow Beijing don't fight Beijing and I think you're in

for a pretty good bull market ride you know I appreciate what you said Jason but I still see this as a very tough sell we had stimulus before China but we still have overall poor performance and I think more importantly China is perceived to be much less friendly to Global Investors because of the policies of gin Pang the head of China um if you look at the investment landscape that the China consumer is overinvestment in personal savings so it seems to me like we're going to need a lot more than stimulus I mean doesn't China

seem to need a a restruct stru in the whole economy but that seems like a tall order under xining doesn't it I mean there's something missing here isn't there Bob you're absolutely right um there two things right and if you're focused just on the stock market uh you know there's of course the dry powder how much can be deployed and what will it take to move all that money into stock market right now you know estimated they about 20 trillion and this is not reming be this is US dollar 20 trillion equivalent in dry powerder

cash in the bank waiting to invest the fact that they haven't invested is of course a confidence issue so on the one hand you got a lot of money very weak confidence but that could all turn into potential for the market B I do want to talk about the other point you made which is the underlying economy right because ultimately the the stock market is more than just a confidence game right you do need the underlying economy to perform and I think this is where there's a lot more wait and see right the government will

spend money throw money at it but we know ultimately it can't be just govern spending right there has to be really healthy strong private sector investing from the corporate side and spending on the consumer side and I think you're right that remains to be seen is the stimulus big enough to Kickstart a virtuous cycle and we'll have to we'll have to see I don't mean to keep belittle belaboring this point Jason but what's going to change here I mean the it seems like you need a fundamental restructuring of the economy Gan ping does not like

capitalism that's what kind of the underlying premise here how are you going to change this to suddenly make it a more uh investor friendly more open more transparent I this seems to be going against everything Gan ping is telling us at this point yeah so I think you know the one thing that I have a slight different view versus uh others looking at Beijing is yes you know uh xiin ping uh does you know have his skepticism about the Capital Market but he's also uh quite practical and wiy right he did maneuver himself to the

top position uh not not because he he's inflexible and unintelligent but because he's quite Savvy and can pivot and I think he's probably taken his licks and realized that uh you know through beijing's incredible effort right uh it has struggled mightily at managing economy it has to go back to what has worked for his predecessors which is let the capitalistic competitive economy do it work for him because ultimately for him to to stay in power to be the legitimate you know Grand leader the economy has to perform and I think he's tried one path which

is him micromanaging and working really hard and seeing almost no results and I think he's now sort of recognizing and it's just like Co right his initial policy managing Co was unsuccessful and then he said that's I'm just going to open it up I think he's hit that point where he says look really capitalistic imped the way to go I'm impressed you're saying that I don't necessarily know if it's happened yet I mean the problem here is that everybody myself included thought when G Jinping came in we were going to get sort of another version

of den Chao ping the great leader of the 70s and 80s who brought China out of the disaster of the 1960s and instituted limited amounts of capitalism but we didn't instead of den Chao ping we essentially got Mount Tong and that's the problem the Global Investors are having you're saying you think that giian ping is starting to change is that your your point here yeah because what we're getting from Beijing right previously Bob you're absolutely right he was dismissive of the stock market thinking ah and in China the stock market is more like a casino

so why should I care about what the stock markets telling me but he was quite uh sort of micromanaging when it comes to real estate thinking oh he's going to contain the real estate bubble through sheer force of sort of taking apart uh these big construction companies I think he's come to real I that it's a very delicate system and this micromanaging doesn't work uh you know it's it's been three years of him doing that and the data is just telling him the old system works better so I'm I'm betting on the Practical side of

him is going to Pivot I I I hope that you're right but I'm still skeptical Dave chime in here somebody's wrong here uh I know David terer of Appaloosa management he was on our air he said he's buying everything related to China because of the the government's support the stimulus supposedly that's coming but we have other people Ray doio says it's really difficult to invest in China uh because Beijing is seeking to structurally move the country away from capitalism so somebody's somebody's wrong here Dave your your thoughts yeah no I think but you're hitting the

nail on the head the Chinese market has been uh full of controversy for good reason because to your point there was expectations of further bro uh broadening broadening out and further opening up and the opposite has happened but I I think Jason's point is a really good one is that at we're at the stage now where I think the authorities are recognizing the challenges that they have and they need to Pivot and need to make changes however I do think investors who are looking at China uh need to be more cautious and careful there's still

a lot of risks out there the smaller companies are very opaque uh there's questions actually about connectivity with state owned Enterprise is and who actually owns what and that was really one of the reasons and thesis is behind us launching strag there is a lot of similari between those stocks and the magnific Ty stocks you have in the US but for an investor looking at China now Precision may actually be a benefit to because they know exactly what they're going to have either large Mega comp multinational companies Revenue SC that aren't necessarily as dependent upon

the stimulus fully coming to even if we know it's happening coupl with the fact that the Chinese market and of course this is been the case time is extremely undervalued relative toad Globe relative to the US relative to BR em so for an investor saying hey I can Embrace controver I know the path may not be perfect it could be volatile but I'm actually buying stocks at a much cheaper price with the potential for outside learnings going forward which is one of the reasons why I think the Chinese maret come back e e