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A Historic Change Is Underway in Chinese Stocks

By Dr. Steve Sjuggerud
Monday, June 26, 2017

Last Tuesday, the largest stock-index provider in the world – MSCI – made a historic announcement...
 
It announced a plan to finally include local Chinese A-shares in its benchmark emerging markets index.
 
This one move will ultimately cause hundreds of billions of dollars to flow into Chinese stocks in the coming years...
 
I've written about this story for months. And last Tuesday, I told you the day of reckoning was finally here. I was right... MSCI made the right decision.
 
I can't overstate the importance of this change. It's absolutely huge. And it will affect just about every investor on the planet – even if they don't realize it.
 
This is the start of a major shift around the globe. By the time the dust settles, up to $1 trillion could ultimately flow into Chinese stocks... simply because of last week's announcement.
 
Here's why...
 
Big investors (like pension funds and hedge funds) look to MSCI for guidance on their holdings. These big investors have "benchmarked" their investments to MSCI's indexes.
 
Until last week, big investors didn't need to invest in China's local stock markets.
 
MSCI had said that local Chinese stocks were too difficult for foreign investors to buy and sell. But China's efforts to open up its markets have finally paid off. For the first time ever, MSCI is including local Chinese stocks in its global indexes.
 
The plan MSCI announced was a little different than we expected. The original plan was to include 400-plus Chinese stocks. But that number shrank...
 
Instead of including 400-plus stocks, MSCI will include only large-cap and dual-listed stocks (stocks that trade in both Hong Kong and mainland China). This brings the total included to 222.
 
This is a smaller set of companies than expected. Our opinion is that by focusing on the stocks that are easiest to buy, MSCI was "lowering the bar" to allow China to qualify.
 
MSCI expects to add the 200-plus companies it left out sometime in the future. For now, here's what the plan looks like...
 
MSCI plans to move the 222 Chinese stocks it's including to a 0.73% position in its main emerging markets index after market close on May 31, 2018. China does have a few hoops to jump through for that to happen. But they're trivial.
 
This is just the first move. Ultimately, according to MSCI, the final weighting of local Chinese stocks will be about 18% of the index.
 
Long story short, this simple announcement could cause up to $1 trillion to flow into Chinese stocks over the next few years. It's absolutely huge news.
 
MSCI made the right decision. Large investors will be forced to buy Chinese stocks for years – starting in May of 2018. Make sure you get your money there first.
 
Good investing,
 
Steve

P.S. Right now, I believe most investors are missing an even more attractive investment opportunity... In fact, I bet not one in a hundred Americans has ever made this sort of investment before. Yet it could deliver gains of up to 500% as this bull market finishes its run. I'll be discussing this unique opportunity on Thursday during an emergency "Melt Up" briefing. If you're interested in hearing more, click here to reserve your spot.



Further Reading:

"Emerging markets will likely continue to outperform... for years to come," Steve writes. One of the oldest rules in finance is backing investors in emerging markets today. Learn why now is the time to invest right here: Why You Need to Move Money OUT of the U.S. Today.
 
"I fully expect to see another quick, triple-digit boom in China at some point in the next five years," Steve says. This is not likely to happen in the U.S. or Europe. But history shows incredible gains are possible in Chinese stocks. Learn more here: This Market Has Doubled Three Separate Times in the Last 12 Years.

Market Notes


NEW HIGHS OF NOTE LAST WEEK
 
Aetna (AET)... health insurance
UnitedHealth (UNH)... health insurance
Weight Watchers (WTW)... weight-loss programs
Medtronic (MDT)... insulin pumps and pacemakers
AbbVie (ABBV)... Humira, other prescription drugs
AmerisourceBergen (ABC)... pharmaceuticals
Abbott Laboratories (ABT)... Similac, Pedialyte, Ensure
Johnson & Johnson (JNJ)... Band-Aids, Tylenol, Listerine
Clorox (CLX)... Clorox bleach, Pine-Sol cleaners, Glad trash bags
PepsiCo (PEP)... Pepsi soda, Lay's chips, Tropicana juices
McDonald's (MCD)... burgers, fries, milkshakes
GrubHub (GRUB)... food-delivery app
American Express (AXP)... credit cards
FedEx (FDX)... shipping
Southwest Airlines (LUV)... largest domestic airline
Carnival (CCL)... cruises
Royal Caribbean Cruises (RCL)... cruises
MGM Resorts (MGM)... casinos and resorts
Pool Corp (POOL)... pool supplies and products
Lennar (LEN)... homebuilder
Stanley Black & Decker (SWK)... tools and storage
U.S. Concrete (USCR)... concrete
Caterpillar (CAT)... heavy machinery
General Dynamics (GD)... "offense" contractor
Lockheed Martin (LMT)... "offense" contractor

NEW LOWS OF NOTE LAST WEEK
 
O'Reilly Automotive (ORLY)... auto parts
Hertz Global (HTZ)... the death of rental cars
Barnes & Noble (BKS)... bookstores
Mattel (MAT)... toys
Dick's Sporting Goods (DKS)... sporting goods
Finish Line (FINL)... athletic shoes
Fitbit (FIT)... "cocktail party" stock

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