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I know what you’re thinking. Chinese stocks? Really? With all the tariff chaos, the regulatory crackdowns and the real estate crisis that won’t quit?
That hesitation is exactly why this might be one of the most asymmetric bets sitting in front of us right now.
The Shanghai Composite has been ripping higher, and here’s the unusual part — it’s oddly under-owned by nearly everyone outside Beijing. Investors have been avoiding China because of the property meltdown and heavy-handed regulation, leaving the whole market sitting in a fear-driven vacuum.
Buying into Chinese stocks right now is a high-stakes bet, but the payout could be asymmetric if this chaos turns out to be a little bit of noise. And the fear isn’t just about the economy — it’s the tariffs, the headlines and the political theater.
But what if this tariff situation is nothing more than negotiating theater? What if it’s a bluff? What if the Supreme Court issues a decision that strikes it down? If that happens, the entire overhang disappears in an instant.
If a deal is cut, all that fear unwinds.
We’re already seeing what fear looks like in real time — China getting punished on every tariff headline, with stocks like PDD Holdings (PDD) getting hit hard. It’s the classic fear trade playing out, and markets often overshoot when emotion takes the wheel.
The High-Stakes Setup
This is where things get interesting. When positioning is this extreme and sentiment this washed out, it doesn’t take much to flip the narrative. And when it flips, it usually flips fast.
I’ve been tracking several setups that take advantage of that potential unwind. The Direxion Daily CSI China Internet Index Bull 2X Shares (CWEB) could make a run toward $65 if fear starts to ease.
On the inverse side, Direxion Daily FTSE China Bear 3X Shares (YANG) is the 3x leveraged bear play. I’d wait for a close above the 61.8% Fibonacci retracement before looking toward a move to $60. Leverage cuts both ways — if China fails, YANG fails fast, but if China catches a bid, the upside can be explosive.
The Contrarian Edge
China is the most hated major market on the board right now. Under-owned, misunderstood and overshadowed by political noise. That’s exactly the kind of environment where contrarian setups come alive.
If the tariff story softens or disappears, if sentiment shifts even slightly or if positioning simply normalizes, these beaten-down names could move hard and fast.
The crowd is terrified. And when the crowd is this far to one side of the boat, the opportunity is usually on the other.
I’m not saying this is a sure thing. I’m saying it’s one of the most interesting asymmetric plays out there, especially if the current drama turns out to be temporary. When fear overloads a market, smart money pays attention.
Jeffry Turnmire
Jeffry Turnmire Trading
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We develop strategies to the best of our ability, but we cannot guarantee a future return. There is always a risk of loss when trading. Past performance is not indicative of future results. The results shown are from a 237-trade backtest from 1/1/20 – 1/1/26. The result was a 70% win rate, 40% average return (winners and losers), with a 7-day hold time.
