Another Correction?

The carnage continued Wednesday as skittish investors abandoned stocks amid concerns that the global economy is sputtering.

The Dow Jones Industrial Average led the major averages lower, posting a loss of nearly 500 points on the day. Meanwhile, volatility spiked and gold snapped back above $1,500.

Global growth fears are commanding the media’s attention in a big way this week. In fact, many analysts are beginning to revise their expectations as weaker than expected economic data surfaces.

“We expect global growth to slow in 2020 to its slowest pace since the global financial crisis,” said UBS global chief investor Mark Haefele, via Business Insider.

“Citing the US-China trade war, Haefele said the bank did not ‘rule out a worsening of the trade situation over the next six to 12 months.’”

Not only is the president is facing a potential impeachment crisis — we also are dealing with ongoing protests in Hong Kong, crumbling IPOs, and some softer economic data helping fuel global growth concerns as the fourth quarter gets underway.

It was a bad day for stocks. But one Chinese electric vehicle company is having a much worse week.

Chinese electric vehicle manufacturer NIO Inc. (NYSE: NIO) has had a rough few days.

The company many have nicknamed “China’s Tesla” was the first Chinese EV company to go public. Much like its American counterpart Tesla Inc. (NASDAQ:TSLA), NIO wants to open pop-up stores and eschew the traditional dealership model.

Unfortunately, these plans aren’t going too well. The company missed earnings expectations last week due to rising costs and increased competition. Now, some analysts suspect NIO is running out of cash. One industry analyst cut NIO’s price target to less than $1, Yahoo Finance reports, noting that there’s probably not enough demand to justify the planned 200 pop-up stores in more than 100 Chinese cities.

NIO shares continue to sink as the bad news rolls in. Even factoring in yesterday’s double-digit snapback move, the stock is down nearly 50% since Sept. 1. Since the stock’s highest point in March of this year, NIO shares have fallen more than 80%.

NIO

That’s not a chart I’m interested in buying anytime soon.

While NIO stumbled into oblivion, Trump is looking to crack down on Chinese companies listed on U.S. exchanges.

Last week, Trump is rumored to have floated an idea to delist Chinese companies from US markets, reports CNBC, presumably to gain more leverage in his trade war.

But Trump’s not the only one looking to clamp down on Chinese ADRs. Even the Nasdaq is looking to tighten up its requirements for Chinese stocks.

The platform is concerned that most of the shares from these companies are going to Chinese insiders, leaving other potential investors in the dust, Reuters reports.

Chinese investors are using the IPOs from small companies as a backdoor method on cashing out in a way not allowed in communist China. To combat this, the Nasdaq is shaking up the criteria a bit before a company can IPO. First, the company has to have at least some tenuous link to the United States. And at least half of the shareholders must hold $2,500 or more in shares.

Meanwhile, Tesla is making moves of its own in China.

It looks as if Elon’s pride and joy wants to pick up the slack left behind by other EV companies in Asia.

Tesla’s operation in China is about to start churning out Model 3s, according to Reuters. The company plans to make 1,000 Model 3 vehicles a week from its new Shanghai factory.

Given Tesla’s less than ideal relationship with production numbers and that this is Tesla’s first overseas factory, I’m not too sure how the China Model 3 push will play out.  In fact, the $2 billion facility is the only foreign-owned car factory in the country.

Amazingly, Tesla shares aren’t looking too bad these days. Elon has managed to avoid his usual social media controversy as TSLA has posted some sideways chop over the past four months. The stock has even managed to hang on just below its September highs during this week’s hard reset.

TSLA

While I’m not advocating going “all in” on Tesla into the teeth of this market tantrum, it could be a stock worth watching after the dust settles…

Sincerely,

Greg Guenthner

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Greg Guenthner

Greg Guenthner, CMT, is the editor of Sunrise Profits and Seven Figure Signals. He has been with Agora Financial/Seven Figure Publishing since 2005. In 2019, the average position in Greg’s Sunrise Profits portfolio outperformed the S&P 500 by 1.65x.

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