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China stocks should come back in 2021 after tough first half, two traders say


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Trading China after Didi IPO and tough first half for Chinese tech stocks

Things may be looking up for Chinese investments.

Two traders said Wednesday they expect a resurgence for at least large-cap Chinese stocks in the second half of 2021 after a difficult first half.

Though the iShares China Large-Cap ETF (FXI) is in the red for 2021, "there's good value down here," Blue Line Capital founder and President Bill Baruch told CNBC's "Trading Nation."

"It did get a little bit of a bounce in May ... that sort of aligned with the Chinese yuan strengthening against the U.S. dollar," Baruch said. "I do think the U.S. dollar is going to weaken against the yuan here in the second half of the year, so, that should bring a tail wind."

Baruch said the ETF also recently exited a chart pattern known as an inverted head and shoulders, which technicians often see as a sign that a downtrend is about to reverse course.

The ETF still faces some overhead resistance at $48 and $55 a share, however, Baruch said. FXI fell by about half of 1% in early Thursday trading to around $46.12.

Top FXI holding Alibaba is also showing promise having broken above a trend line going back to 2018, Baruch said, adding it "will be a leader" in coming weeks.

Investors may have gotten ahead of themselves on the China trade toward the end of last year, but it's created an opportunity, Joule Financial's chief investment officer, Quint Tatro, said.

"I think this is really an interesting area to consider going into the second half of the year and we've actually been adding to our position," Tatro said in the same "Trading Nation" interview.

"We see manufacturing coming back online, we see global resurgence of the consumer and I think that's going to help China," he said.

Alibaba's fundamentals show as much potential as its technicals, Tatro said.

"This is a company that's down considerably from their highs and now trading basically at par with their growth value," he said.

Alibaba was trading at around 0.5 times forward price to earnings early on Thursday.

"Ultimately, I think we see some value in some growth names here and it's an area to consider for the portfolio for sure, Tatro said.

Disclosures: Tatro owns shares of the FXI in his personal and client portfolios.