Millennials: Chinese Stocks Are Deeply Oversold — Time to Buy?

BMO MSCI China ESG Leaders Index ETF (TSX:ZCH) is a great Canadian way to bet on Chinese stocks, as they attempt to stage a massive rebound from oversold conditions.

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Millennial investors have time on their side, but that doesn’t mean they have a free pass to speculate on momentum securities or jump in front of a freight train to pick up a few dimes. Sure, millennials have decades to wait for their investment to bounce back, but that doesn’t mean they should be lazy with their investment decisions. In fact, given the many years of compounding in their futures, a case could be made that millennials ought to put in extra due diligence and more homework to ensure they’re making the right bets.

Millennial investors: Don’t be lazy!

Millennials can bet on growth stocks and supposedly high-multiple stocks that are now beaten down, but please don’t be lazy! Don’t chase on the way up or down without doing your homework! That said, they must have an investment thesis and should resist the urge to chase, especially if they cannot value a given company or are not willing to buy more shares if prices were to retreat considerably.

No, investing should not be a game that gives you euphoria from the day-to-day moves. If it is, you’re probably too short-term oriented and could miss the best buying opportunities, which tend to come when such short-term thinkers are not feeling so great. Many beginner investors have gotten hurt chasing momentum stocks in the back half of 2020 and 2021. While momentum is a great way to get rich quickly, it’s also a likely way to see your investment get slashed in half in a hurry. If you don’t evaluate a company and have no idea what it’s really worth, it can be tough to hang on when most others have already jumped ship because the momentum and excitement have all but dissipated.

Chinese stocks could be severely undervalued

Indeed, market beaters should feel a bit of pain when they buy. That’s when the risk/reward tradeoff is arguably the greatest! With the TSX and S&P 500 skyrocketing back after severely oversold conditions, I think now is a great time to check out some of the most intriguing catch-up trades in today’s rocky market. Now, this may still be a bear market bounce, but I’d argue that the risks of missing out on further upside from some of the more oversold names out there are high.

For those who’d rather buy the indices, BMO MSCI China ESG Leaders Index ETF (TSX:ZCH) seems like a great way to play the recovery in Chinese stocks. They’re deeply oversold, have been given a thumbs-up by investing legend Charlie Munger, and could be on the cusp of a big turnaround.

It’s painful to own Chinese stocks these days. They’ve crashed hard. But that hasn’t stopped folks like Charlie Munger from doubling down on Alibaba Holdings, a top Chinese tech titan that announced huge buybacks this week.

Pessimism seems overblown

Delistment fears, geopolitical tensions, business-unfriendly regulations, accounting question marks, and all the sort have caused many to shy away from Chinese stocks. Despite their growth and dirt-cheap multiples, investors seem to think the discount caused by the list of risks mentioned ought to be higher.

Indeed, the discount may prove to be greatly exaggerated. At the end of the day, stocks like BABA are deeply oversold and may prove severely undervalued if the right cards fall into place and the fears of foreign investors prove overblown. Munger is a true contrarian, and he’s betting on a bounce back. I think it’d be wise not to bet against the man.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette owns the BMO MSCI China ESG Leaders Index ETF. The Motley Fool has no position in any of the stocks mentioned.

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