Earlier this month, China loosened many components of its Zero-Covid policy. The end of travel restrictions and lockdowns should eventually be a boon to global markets, as the world's second-largest economy comes back on line.
That hasn't happened yet, because Covid infections are surging on China's mainland. Japan and Taiwan have announced new plans to test arrivals from China, and the U.S. is also implementing new measures. According to one Yale researcher, 800 million people, or about 10% of the global population, could become infected within the next three months.
Part of an investor's job is to look past the present and into the future. While China may be looking at a bleak winter, a gradual improvement should occur in the population's immunity.
Markets may already be looking beyond China's near-term struggles. Looking at various asset classes, there are several trades setting up right now that could profit from China's eventual reopening. I've divided these setups into three categories - stock/ETF, commodity futures, and currencies.
The Quick FXI: Go Long iShares China Large-Cap ETF
The iShares China Large-Cap ETF (FXI) has lost 23% year-to-date. But price action has improved considerably over the past two months, and now FXI is trending higher.
Charts by TradeStation
FXI has formed an A-B-C-D pattern. This bullish formation creates a price target of $35 for the ETF.
China's Copper Lining
China by far consumes more copper than any other country in the world. Since the red metal is frequently used in manufacturing, a full reopening of China's economy could create explosive demand for copper.
Copper has formed an ascending triangle pattern, with the high end of the triangle located at approximately $3.95. A clean break above $4 could launch a rally to the next major resistance point, at $4.57 (blue dotted line). Ultimately, China's reopened economy could drive copper to $5 (black line).
Money Trade: AUD
Much of the copper that is consumed by China comes from Australia's mines. Australia also provides China with iron ore, nickel, and other commodities that are used in the manufacturing process.
Interestingly, the chart of the Australian dollar is similar to that of FXI. Like FXI, Aussie has formed an A-B-C-D pattern. This bullish formation suggests a rally to .7350 for Aussie.
This could be a tough trade. If infections in China spread too rapidly, fresh lockdowns could occur as a result, putting a temporary end to the reopening process.
However, China will eventually reopen. When it does, I'll look to FXI, copper, and the Australian dollar to lead the way higher.
