The Emergence of the Third Wave

In my November insight, I discussed the potential for an impulse third wave in Chinese markets based on technical analysis. Today, as macroeconomic conditions shift, we see this trend materializing. The long-anticipated third wave has begun, offering fresh opportunities for investors.

Source: TradingView

Bull Markets are Born on Pessimism

Investment legend Sir John Templeton famously said: "Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria."

Despite China's strong GDP growth and trade performance, sentiment remained overwhelmingly negative over the past two years. Concerns over debt, deflation and the lingering effects of property sector policies from 2020 kept investors wary.

In September 2024, amid peak pessimism, I increased my Chinese fund investments. Shortly after, China unveiled aggressive stimulus measures, sparking a market rally—the first wave. A brief pullback formed the second wave, leading me to publish Third Wave for Chinese Stocks? on 25 November 2024, highlighting the next potential surge.

Chinese Markets and Their Fundamental Strengths

While developed economies grapple with debt, inflation, and trade challenges, China has managed these areas effectively: 

• Debt Management: While local government debt remains a concern, China’s central government retains strong financial reserves. As long as earnings exceed expenditures, liquidity risks are minimal.
• Inflation Hedge: While China experiences deflation, global markets battle inflation. China has strengthened its financial position by becoming a major gold buyer.
• Economic Transformation: Once a low-end manufacturing hub, China has evolved into a hightech powerhouse.
  • BYD surpassed Tesla in electric vehicle (EV) sales.
  • DeepSeek, launched in January 2025, positions China as a leader in EV and AI industries.

Timing the Third Wave

While technical indicators signaled the third wave’s formation in 2024, fundamental confirmation was key. Post-COVID, the U.S. market surged—first with EV growth, then AI-driven investments after ChatGPT’s launch in 2022. Now, China is poised for a similar trajectory. With its stock market still at historically low valuations, the upside potential remains strong. A Case Study: YangZiJiang Finance In November 2024, I discussed the third-wave opportunity with an SGX partner broker, citing YangZiJiang Finance as a strong candidate. At the time, its stock was $0.395. Today, it has surged to $0.57, aligning with the expected trend.

Source: TradingView

Identifying More Third Wave Opportunities

For global investors, direct access to Shanghai and Shenzhen stocks may be restricted. However, many Chinese companies are listed on international exchanges, including: • Hong Kong Stock Exchange (HKEX) • New York Stock Exchange (NYSE) • London Stock Exchange (LSE) • Singapore Exchange (SGX) With China’s economic transformation accelerating, the third wave presents a compelling opportunity for investors worldwide. You can find these opportunities using CMC Invest's search feature.

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