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The Biggest Anomaly in Finance TodayBy
Tuesday, April 21, 2015
It shouldn't exist... but it does.
It will go away, at some point... I'm certain of it.
And somebody will make an unbelievable fortune on this...
It could be you.
Here's what's going on...
Chinese stocks are up more than 100% in the last 12 months. (No, I am not kidding.)
Meanwhile, the main Hong Kong stock market index is up less than 20% in the last 12 months.
The thing is, many of the same companies trade on both stock exchanges. (Yes, they are the same, identical businesses trading on two different stock markets.)
What has happened – as you can probably guess – is the shares listed in China have become dramatically more expensive than the shares listed in Hong Kong.
To me, this is the biggest anomaly in finance today...
This anomaly should shrink in the near term – and ultimately it should go away in the long term.
Yet today, as I write, the Chinese shares are at a 29% premium valuation to the identical shares trading in Hong Kong. This chart shows it...
 How will this anomaly go away? Will the Chinese shares fall? Or will the Hong Kong shares rise? It doesn't matter which happens, if you're a smart hedge-fund manager... All you need to "bet" on is that this anomaly will shrink. (A hedge-fund manager would do a "pairs trade" – by simultaneously buying the Hong Kong shares at a discount and selling the same shares in China at a premium.)
If you're not a hedge-fund manager, the simplest trade is to buy Hong Kong through one of the major Hong Kong or China exchange-traded funds. (A lot of so-called "China ETFs" actually just own Hong Kong-listed Chinese companies.)
Hong Kong-listed China plays are cheap – they're one of the best stock market values on the planet.
Our best measure for these stocks is the Hang Seng China Enterprises Index. It's much cheaper than most anywhere else on the globe – trading at a single-digit P/E ratio (forward P/E is 8.9) and a dividend yield of more than 3%.
So you have a great situation here... You can buy one of the world's best stock market values. And you have a great tailwind as well... in the form of the greatest anomaly in finance.
That 29% premium will be closer to zero – permanently – someday soon.
Take advantage of this crazy situation now, before the anomaly goes away...
Good investing,
Steve
Further Reading:
You'll find more of Steve's recent research on China below:
The Stock Indicator of the Future
Chinese stocks have soared so far. But that doesn't mean the gains are over... Missed Out on the New Property Boom? Here's What to Buy Instead
"I told Liz Claman on TV: 'The best place on the planet to see that right now is actually in China.'" Market NotesAN UPDATE ON ONE OF STEVE'S BEST RECOMMENDATIONS In February, we told you about Steve's big call on Blackstone Group (BX)... Today's chart proves the idea is still working.
Back in January 2013, Steve began writing about the opportunity in Blackstone. In short, Blackstone is Steve's favorite "backdoor" way to invest in the U.S. real estate rebound.
Blackstone is a giant money manager. As Steve wrote a few years ago, Blackstone started buying up residential real estate properties at dirt-cheap prices, fixing them up, and then selling them for a profit. According to Steve, this simple "Buy It. Fix it. Sell it." strategy was setting Blackstone investors up for a 100% gain within two years.
As you can see below, Steve's numbers turned out to be conservative. Investors who bought on Steve's recommendation doubled their money in just one year. Since Steve's first note in DailyWealth, shares are up 134% (not including dividends)... and just soared to a new all-time high. Better yet, the company's annual dividend yield has skyrocketed – quadrupling in just the past 12 months. That means investors who took Steve up on Blackstone in 2013 are also earning a safe dividend yield of 15.7% on their original cost.
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