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$400 Billion Will Move Into Chinese Stocks Based on Today's Decision

By Dr. Steve Sjuggerud
Tuesday, June 9, 2015

"$400 billion will move into Chinese stocks."
That's what the world's leading provider of global stock market indexes, MSCI, says will happen over time... based on a decision happening at approximately 5 p.m. ET today.
This is an extraordinary moment.
You see, although China is the world's second-largest stock market by market value (when you add the Shanghai and Shenzhen stock markets together), most institutional investors have next-to-zero exposure to China.
But that's about to change. And it will cause $400 billion to flow into these markets.
So what is this big decision?
It's about adding Chinese stocks to world stock market indexes...
Right now, China's stock markets are NOT included in most world stock market indexes. But at around 5 p.m. tonight, MSCI will announce when it might include China in its indexes.
This is a big deal...
When MSCI makes changes in an index, big dollars start to move.
You see, $9.5 trillion of investor money is "benchmarked" to MSCI indexes. Large investors like to track indexes. So if a stock is added to a stock market index, big dollars flow into that stock. And if a stock is booted out of an index, the stock is sold heavily.
This time, we're not just talking about moving a single stock into or out of an index... We're talking about moving an entire country into an index. This is a major event.
For example, $1.7 trillion (yes, trillion!) is currently benchmarked to the MSCI Emerging Markets Index by large investors...
If Shanghai- and Shenzhen-listed stocks (called Chinese A-shares) went from zero percent of the index to 10% of it, then $170 billion would ultimately have to flow into China's stock market.
You see, the investment funds that track the MSCI Emerging Markets Index would have to buy Chinese stocks to match what the index holds.
And that 10% figure is entirely possible... MSCI has put out research showing that Chinese A-shares could ultimately make up roughly 10% of the MSCI Emerging Markets Index.
Keep in mind, the MSCI Emerging Markets Index is just one index from one provider... the story quickly gets much bigger than the $170 billion that would flow based on MSCI alone.
For example, MSCI's main competitor, FTSE Russell, recently announced it is adding China to its indexes as well. And fund giant Vanguard announced it's adding local Chinese stocks, too. The tide of money flowing into China is just starting.
MSCI says these developments should move $400 billion into Chinese stocks over time.
Today's announcement is important... But regardless of whether or not China is included today, it is inevitable that China will be included in the next couple years.
"The issue is not whether A-shares will get into [the MSCI indexes]; the question is more about when," Chin Ping Chia, head of research for the Asia-Pacific region at MSCI, said in the Wall Street Journal.
However, it won't be an overnight "switch." MSCI will phase China into its indexes. I expect it to start small... but it will increase over time – causing billions to move into China.
This will create a built-in tailwind for Chinese A-shares for the next few years.
Again, this is a big deal... one of the biggest in my two decades in the markets.
NOBODY is invested... Meanwhile, hundreds of billions of dollars are about to move into these markets.
Chances are we'll never see a moment like this again. I urge you to take advantage of it!
Good investing,

Further Reading:

Find more of Steve's recent research here:
The Dumbest Man in China
"Individual investors in China have lost all sense of reality..."
How I Made 995% in 2005... and Why Today's Opportunity Is Better
"While I believe all gold stocks could perform well over the coming years, the biggest gains will come from following my 2005 blueprint..."

Market Notes


The world's largest shipper just broke out to a new high... and that's good for America.
Over the past few years, we've profiled the soaring bull markets in construction stocks, bank stocks, and entertainment stocks. We figure that if these sectors are enjoying rising profits and soaring stock prices, the economy can't be doing all that bad.
Today's chart looks at the surging share price of FedEx (FDX). FedEx is the world's largest shipping company. It employs an army of employees and fleets of planes and trucks to deliver manufactured goods. Therefore, its business rises and falls with the strength of the economy.
As you can see below, business is improving. After about six months of moving sideways, FedEx shares just broke out to a new all-time high. It's more proof that the economy may not be booming, but it sure isn't busting.

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