Chinese stocks bounce back from coronavirus fears—and if they breach this level, they could 'take off'

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Chinese stocks bounce back from coronavirus declines—how to play the moves

Chinese stocks are making a comeback.

The iShares China Large-Cap ETF (FXI) bounced back this week from recent declines tied to the coronavirus outbreak, climbing nearly 5% by Thursday's close.

The ETF is still about 9.5% below its 52-week high and about 43% off its all-time high from 2007, "so, it's got a long way to go" before it reaches fresh records, but its charts are showing encouraging signs, Miller Tabak chief market strategist Matt Maley said Thursday on CNBC's "Trading Nation."

"The FXI has been trading in a sideways range for 18 months, and it's coming off an oversold condition" as it bounces back, Maley said.

"Now, if something with this coronavirus raises its ugly head again, ... it could go back down and retest the lows of that. But I think on a longer-term basis, it looks quite good," Maley said.

The strategist cited China's five-year plan to infuse its system with liquidity, a process that will continue in the back half of 2020.

"They're going to pump in a lot of liquidity into the marketplace, into the system, in the second half of the year, and I think this group's going to go higher by the second half of the year no matter what," Maley said. "The key [level] to watch here is if it can break above its kind of double-top high in the high 45s."

Maley specifically flagged the $45.75 level as the one for investors to monitor. The FXI closed at $41.63 on Thursday, up just over 0.5%.

"[If] it breaks above that level, it's going to take off from here and it'd be very, very bullish on a technical basis," Maley said.

To Mark Tepper, the president and CEO of Strategic Wealth Partners, "it seems as if the worst is behind us as it relates to the headwinds that had been coming at us as far as trade and the coronavirus go," he said in the same "Trading Nation" interview.

"When you look throughout history, these pandemics tend to be short-term pullbacks and they tend to be buyable pullbacks," Tepper said. "So, ... if you identify certain Chinese stocks that you think are trading at a reasonable valuation, I think there's a good opportunity to buy some of them right now."

Tepper recommended one of his firm's core holdings — Chinese e-commerce giant Alibaba — but acknowledged that investors may have had a better opportunity to buy it several weeks ago before it climbed back toward its all-time highs.

Even so, it is "still one of my favorites," Tepper said. Alibaba shares closed at $220.90 on Thursday, up less than half of 1%. They were down less than 1% in premarket Nasdaq trading Friday.

"It is a way to play that rising middle-class consumer in China," the wealth manager said. "As the middle class makes more and more money, they're going to have more money to spend, and Alibaba is going to benefit. So, with Alibaba, you're getting all the same businesses as Amazon, but it's trading at a valuation discount to Amazon."

Disclosure: Strategic Wealth Partners owns shares of Alibaba.

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