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China is almost uninvestable: Strategist

Positive fourth-quarter earnings results for Taiwan Semiconductor (TSM) boosted other chip stocks, with investors hoping it could potentially be a sign of the end of trouble for the sector. However, mixed economic reports out of China disappointed many on Wall Street. It calls into question what investors need to consider when investing in China-exposed companies.

James Early, BBAE Chief Investment Officer, and Dory Wiley, Commerce Street Capital President, joins Yahoo Finance to give insight into Chinese markets and what investors should keep their eyes on.

Early affirms: "I don't think the Chinese economy is a big driver for semis [semiconductors]. The driver there is probably regulation, but going back to the Chinese economy, I would liken it to the adult child who's trying to move out of his parent's basement, but is just having trouble doing that... By that I mean, they've kind of been trying to get on its own feet in a consumer spending sense, it's about 53% of the economy right now, where as the US is about 68%, but they're just struggling."

Wiley responds: "I don't like the exposure to China, I don't like it right now. China is almost uninvestable. That's hard to hear from an investing point of view because we try to keep politics out of it, but there's so many fundamental reasons to try to avoid China as much as we can... China is--exports are down, population is down, the markets down 30%... real estate debt issues, government debt issues, no new construction, and their politics has gone from a party dictatorship to a person dictatorship. So they're moving the wrong direction."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Nicholas Jacobino

Video Transcript

MADISON MILLS: Zeroing in on shares of Taiwan Semiconductor jumping today, boosting other chip stocks, as fourth quarter results suggest that the worst could be over for the sector. Now, that comes after economic data out of China disappoints. And weak demand out of that region pulling down even some of those beloved Magnificent Seven stocks. So which story is going to drive stocks this earnings season, China's economy or the company fundamentals?

We're going to bring in James Early, BBAE Chief Investment Officer. We've also got Dory Wiley, President and CEO of Commerce Street Capital, joining us on this. Thank you both so much for being here. James, I want to start off with you. We had that great news on TSMC driving up the stocks index today. Bad news, though, out of China. And you're a great person to talk to on this because of the amount of time you've spent over in that region. So I'm curious, what do you think will impact the future of this index, the semis index specifically more, that news coming out of China or the company's specific news?

JAMES EARLY: I think it's going to be the company's specific news. I don't think the Chinese economy is a big driver for semis. The driver there is probably regulation. But going back to the Chinese economy, I would liken it to the adult child who's trying to move out of his parents' basement but is just having trouble doing that. And by that, I mean the economy had been trying to get on its own feet in a consumer spending sense. It's about 53% of the economy right now, whereas the US is about 68%.

But they're just struggling, Madison. They're struggling. And so they're going back to that government playbook of heavy spending, heavy infrastructure spending, to try to drive the economy. That's why the market's down. For the semis specifically, though, those things are not driven by consumer demand. That's more of like a Starbucks story or maybe a Tesla or an Apple story. The semis are trying to-- they're trying to do as much buying as they can, the consumers of the semis, before more regulations strike.

JOSH LIPTON: And, Dory, let's bring you in here as well and stick with that semi theme here because one name you like, Dory, is NVIDIA. Obviously, a lot of people like NVIDIA, Dory. Its stock is up about 230% in the past 12 months. What do you think, Dory, as an NVIDIA bull, what do you think the near to intermediate term catalysts are here for this stock? And what do you think also the risks investors should consider before piling in here?

DORY WILEY: Well, you know, kind of going with the overall theme here, it's really AI, right? And so if you're a money manager, you got to have exposure to Mag Seven. And if you have exposure to Mag Seven, you got to have exposure to NVIDIA. And AI is very real, and it's going to be even more real going forward. Now, these other semiconductors, you know, I like-- I like TSM. I like some of these others.

You know, it's really-- but I don't like the exposure to China. I don't like it right now. China's almost uninvestable. And that's hard to hear from an investing point of view because we try to keep politics out of it. But there's so many fundamental reasons to try to avoid China as much as we can. So the less exposure I have to China, the more I'm into AI and semiconductors.

That's kind of what I'm looking for because China, there's just-- I mean, exports are down, population is down. The market's down 30%. It's the third straight year. Real estate debt issues, government debt issues, no new construction, no-- and their politics has gone from a party dictatorship to a person dictatorship. So they're moving the wrong direction. And then what no one's really talking about is all the price deflation that's going on over there, and it's pretty severe.

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