Latest / The Day Trading Podcast with Fexingo: Active Trading, Charts, and Short-Term Market Strategy / Why European Companies Are Doubling Down on China Manufacturing
Transcript
- Lucas: So it's Wednesday, May 27, 2026, and if you glanced at the headlines this morning you probably saw the same one I did — 'China industrial profits jump 24.7% in April, fastest gain in over two years despite headwinds.' Luna: Yeah, that number jumped out. 24.7 percent year-over-year. That's not a blip. Lucas: Right, and then right below it: 'European companies double down on China manufacturing despite EU de-risking push.' So you've got profits surging and actual factory investment accelerating, all while politicians in Brussels and Washington keep talking about reducing exposure. There's a gap between the policy narrative and the economic reality, and for day traders, that gap creates opportunity. Luna: If today's episode helps you think about that gap — why companies are still building in China despite the political risk — then it's worth a few minutes. And if it was genuinely useful, the reason we can keep doing these without ads is listener support. You can find us at buy me a coffee dot com slash fexingo. It's how we stay independent and keep digging into stuff like this. Lucas: Yeah, exactly. No interruption, just — if you get value, that's the way to keep it going. So let's talk about why European manufacturers are doubling down. Luna: The headline from CNBC this morning says European companies are 'doubling down' despite the EU's de-risking push. What's the actual data behind that? Lucas: Well, the broader China industrial profits number — 24.7 percent in April — is the headline. But the European-specific piece is that companies like Volkswagen, BASF, Airbus, and a bunch of mid-cap German industrials are not just staying, they're expanding. BASF started up a massive new petrochemical complex in Zhanjiang last year, and they're already talking about phase two. Volkswagen has new EV plants in Hefei. These are billion-dollar commitments. Luna: And this is happening while the EU is imposing anti-subsidy tariffs on Chinese EVs, and while the US is tightening chip export controls. So the political headwinds are real. Why are they ignoring them? Lucas: Because the math still works. China's manufacturing ecosystem is unmatched in scale, speed, and cost. If you're making chemicals or cars, the supply chain density in the Pearl River Delta or the Yangtze River Delta means you can source components, find skilled labour, and get finished goods to port faster than anywhere else. The alternative — building in Eastern Europe or India or Mexico — adds months of lead time and often higher unit costs. Luna: So it's a cost-benefit calculation where the benefit is still winning, at least for now. Lucas: Exactly. And the profit data backs it up. 24.7 percent is the headline, but if you look at the breakdown, foreign-invested industrial enterprises in China actually saw profits grow faster than the national average in April. So European and American firms operating in China are outperforming local peers in some sectors. That's not a story you hear often. Luna: Right. The narrative is always about China's economic slowdown and Western companies pulling out. But the data suggests a more nuanced picture. Lucas: And that nuance matters for traders. If you're day trading, you're not necessarily buying Chinese stocks directly. But you can watch the ripple effects. For example, the Chinese yuan has been relatively stable against the dollar this month, partly because of this strong industrial data. If profits keep surprising to the upside, the yuan could strengthen, which affects everything from commodity prices to emerging market ETF flows. Luna: What about the European side? If European companies are making more money in China, does that show up in their stock prices? Lucas: It should, but it's often overlooked. Take a German auto supplier like Continental or a chemical company like BASF. Their China exposure is significant — maybe 15 to 20 percent of revenue. If that part of the business is growing faster than their domestic or North American segments, it's a tailwind that might not be fully priced in, especially with all the negative headlines about de-risking. Luna: So the contrarian trade might be to look at European industrials with high China exposure, because the market is pricing in too much pessimism? Lucas: That's one way to play it. But for day traders specifically, I'd focus on the macro signals that move intraday. For instance, the Baltic Dry Index has been creeping up in May. That's partly China restocking raw materials. If you see a big move in the Baltic Dry, it often correlates with strength in Chinese industrial activity, and you can trade that through dry bulk shipping stocks or even commodity currencies like the Australian and New Zealand dollars. Luna: Because Australia and New Zealand are major commodity exporters to China. Lucas: Exactly. So if the China industrial profits number comes in hot, and you see shipping rates rising, you might look for a long bias in the Aussie dollar or in copper futures. Copper specifically — it's been called 'Dr. Copper' because it has a PhD in the global economy. And Chinese demand is a huge driver. So the 24.7 percent profit jump is a data point that could support copper prices, assuming it's not a one-off. Luna: But is it a one-off? April had a low base effect from last year's COVID lockdowns, right? Lucas: That's the right question. The year-over-year comparison is flattered by the fact that April 2025 was a weak month. But even on a seasonally adjusted basis, industrial output in China has been accelerating for three consecutive months. And the PMI data — both official and Caixin — has been in expansion territory. So the trend is genuine, even if the exact 24.7 percent number is a bit inflated by the base effect. Luna: So the underlying strength is real. And that brings us back to the European companies doubling down. They're not stupid. They see the same data we do. Lucas: Right. And they're making long-term capital allocation decisions based on that data. The political risk is real, but it's a risk, not a certainty. Trade tariffs can be negotiated, supply chains can be restructured at the margin, but the sheer size of the Chinese market — the middle class is still growing, even if the overall economy has slowed — means that walking away entirely would be more costly than staying. Luna: There's also the innovation angle. Chinese manufacturing is moving up the value chain. It's not just cheap labour anymore. It's advanced electronics, EVs, batteries, industrial robotics. European companies want access to that innovation ecosystem. Lucas: Absolutely. BMW and VW have set up R&D centres in China specifically to develop EV technology for the global market. They're not just building cars there; they're building the next generation of cars there. So leaving would mean losing access to the fastest-evolving automotive supply chain in the world. Luna: And yet the EU is pushing for 'de-risking' — which is different from decoupling, but still means reducing dependency. How do companies reconcile that with their investment plans? Lucas: They're doing it by creating what some analysts call 'China plus one' strategies. Keep the core manufacturing in China, but build a secondary, smaller supply chain in Southeast Asia or India as a hedge. That way they maintain exposure to the Chinese market and ecosystem, but they have an alternative if geopolitical tensions escalate. But the primary investment still flows to China because that's where the returns are highest. Luna: So the 'plus one' is more about optics and contingency than actual re-shoring. Lucas: Exactly. For a day trader, the takeaway is: don't blindly follow the political narrative. The headlines say 'de-risking,' but the data says 'profits are up and investment is flowing.' That tension creates mispricings. If you can identify assets that are undervalued because of that narrative, you might find an edge. Luna: What's one concrete ticker or ETF that traders could watch today? Lucas: I'd look at the KraneShares CSI China Internet ETF, ticker K-W-E-B. It's got heavy exposure to Chinese tech and consumer names, and it's been rallying this week alongside the industrial profit data. Also the iShares MSCI China ETF, m c h i. Both are liquid enough for day trading. But more importantly, watch the volume — if these ETFs see unusually high volume on a day when European auto or chemical stocks are also moving, it could signal that institutional money is rotating back into China exposure. Luna: And for the more macro-focused trader, the Aussie dollar and copper futures are the purest plays. Lucas: Right. The Australian dollar, ticker A-U-D, is basically a China proxy. If industrial production in China stays strong, the Aussie tends to rally. Copper, which trades under the symbol H-G on Comex, is another direct link. So if you're not comfortable picking individual stocks, those macro instruments give you exposure to the same theme. Luna: Let's talk about risks, though. What could go wrong with this trade? Lucas: The biggest risk is a sudden escalation in trade tensions. For example, if the US or EU announces new tariffs specifically targeting Chinese industrial goods — not just EVs — that could reverse the profit momentum overnight. Also, China's property sector is still weak. If that spills over into industrial demand, the profit numbers could soften in the second half of the year. Luna: So it's not a one-way bet. But the data right now is clearly pointing in one direction. Lucas: It is. And the market is slowly catching on. The S&P 500 is up about 2.3 percent over the past five days, but the small-cap Russell 2000 is up over 6 percent in the same period. Part of that is the China trade — smaller US companies with China exposure are benefiting from the optimism. So the theme is broad. Luna: That's a good note to end on. The numbers are telling a story that's different from the headlines, and it's worth paying attention. Lucas: Absolutely. Keep watching the industrial profit data, the shipping rates, and the currency moves. Those will tell you if this trend has legs. Thanks for listening, and we'll talk to you next time.