• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Stocks

Jim Cramer: Be Wary of China Exposure During This Slowdown

Here are 6 points showing China's growing economic weakness on this trade war. Stay away from China-exposed stocks, for now.
By JIM CRAMER Nov 13, 2018 | 06:55 AM EST
Stocks quotes in this article: SWKS, AAPL, QCOM, MU, LITE, EMR, MMM, HON, SBUX

Everything's changed. That's how it feels. And I have a theory why. You know how we are starting to hear that we could come to some agreement with the Chinese?

I am not sure that will happen, but one thing is certain. I think the Chinese want to talk because they are concerned that business in China has gotten weaker. They can't afford that to happen.

Throughout this confrontation with China, the dialogue has all been one way: We can't outlast the Chinese.

Now I have no doubt that long term, the Chinese can win out: That's a totalitarian regime that tolerates no dissent and would crush those who say they need the U.S. market.

But short term, we are getting hefty evidence that China's economy is becoming a looming problem -- and that could bring them to some sort of concessionary attitude at the upcoming G-20 meeting.

There's only one problem. It might be too late to save the earnings of American companies that are reliant on China to make their numbers.

Let's look at the evidence that we have to indicate the slowdown.

First, the Baltic Freight Index, a good proxy for the volume of commerce with the PRC, is down 17% for the year and has been falling like a rock.

Second, oil has entered a bear market with some very big oil-related stocks signaling that the $58 level may not hold. I think supply -- namely from the U.S. via tanker -- is overwhelming demand -- mainly from China. We shouldn't be having such a plummet with Iran offline, but the U.S. finally has enough pipe to bring a lot of the Permian oil to market. That's helping to sink the price. But the other factor, the one that had kept oil demand elevated, was the growth of China. That growth is slowing.

Third, we have seen a collapse in demand for lots of cellphone components -- and I think that's because demand for phones in China has weakened. We know that Apple (AAPL) orders are down: we gathered that from Lumentum Holdings (LITE) and from Skyworks (SWKS) . The latter, though, also has a lot of China and that's weakening, too. I believe the same can be said about Micron Technology (MU) and Qualcomm (QCOM) .

Fourth, hardly a day goes by without hearing a company saying it is doing its best to remove any manufacturing from China. The retailers and apparel companies are furiously trying to shift production. Meanwhile, I understand that the Chinese manufacturers are offering concessions to those who stay. That's hurting profitability.

Fifth, our steel sanctions are really starting to cut into the dumping of Chinese steel, which is depressing the world price and having a real impact on an industry the Chinese have dominated forever.

Sixth, Europe, the biggest market for Chinese goods, is, once again, teetering on the brink of recession. That makes it hard for the Chines to export in that market, given the tariffs that are going up here. If there is no agreement at the G-20, then the 25% tariffs are going to go into effect.

So, what's the impact of these issues? I think it makes it untenable to have too much exposure to China. Yesterday, we recommended to Action Alerts Plus club members to sell a long-standing position in Emerson (EMR) . We think the world of the company. But if you go to their website, you can see the huge section about their "in China for China" page. I think it is one thing to be hurt by potential tariffs. But if China itself is slowing, an in China for China strategy becomes a risky bet.

The charitable trust has cut a huge amount of exposure to China, including that of 3M (MMM) , which has always had a presence there. We are holding on to Honeywell (HON) but that's really about it when it comes to in China for China.

So, when I say that "everything's changed," the most important change is the slowing of China. It means that you have to be more cognizant of what you own that's doing business in China. Last night, I confirmed from Kevin Johnson, the CEO of Starbucks (SBUX) , that business is robust in China. That makes sense. But industrial demand is weak. Typically, you could revert to owning just U.S. -- but you then default to what Jerome Powell wants to do in the U.S.: Break the economy to brake the economy, meaning crush the economy to slow it.

Yep, everything has changed. And the hiding places? They are getting harder and harder to find, which is why the G-20 has become the fulcrum of hope. But this isn't sports: Hope should not be part of the investing equation.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication,  Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long AAPL and HON.

TAGS: Investing | Stocks

More from Stocks

Here's the Secret to Market Timing

James "Rev Shark" DePorre
May 21, 2022 10:00 AM EDT

You've probably been told timing the market is futile, but here's a way to make it possible -- if you're willing to do the work.

It's Official: That Hairy Animal With Claws and Sharp Teeth Is a Bear

James "Rev Shark" DePorre
May 20, 2022 4:31 PM EDT

Along with the media proclamation of a bear market, we have some improvement in the charts of many smaller stocks, but ...

Applied Materials Slips on Miss: Where Will the Chips May Fall

Bruce Kamich
May 20, 2022 1:00 PM EDT

Let's see what the charts say.

Consumer Confidence Is Shot

Bret Jensen
May 20, 2022 12:00 PM EDT

Until things start to improve for the average consumer, it is hard to see significant upward moves for either the markets or economic activity.

I'm Cautious on Marvell Technology Ahead of Earnings

Bruce Kamich
May 20, 2022 11:52 AM EDT

Let's review the charts and indicators.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 10:10 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    "Market Timing for Dummies"
  • 01:44 PM EDT STEPHEN GUILFOYLE

    Stocks Under $10 Portfolio

    We're making a series of trades here.
  • 03:07 PM EDT PAUL PRICE

    Why Is Walmart Down Big Today?

    Besides its poor earnings report Walmart was way...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login