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Why Hundreds of Billions of Dollars Will Flow Into China's Stock MarketBy
Tuesday, December 1, 2015
Shares of U.S.-traded Chinese web-services company Baidu are up 50% in the last two months...
Why?
One reason is that Baidu is a Chinese company that is being added to MSCI's international indexes TODAY.
Investors knew that this date was coming. And they bid up the stock price in advance.
The action in Baidu is just the tip of the iceberg...
The same thing will happen – only with hundreds of Chinese stocks – in the next few years.
Here's why...
Right now, China-traded stocks (stocks trading in China's currency), make up ZERO percent of the major international stock indexes. (Yes, they are zero percent of the major emerging-market indexes and the major China stock-market indexes.)
This is crazy.
China is the world's second-largest economy. And the China "A-share" market is the world's second-largest stock market behind the United States.
It is inevitable that Chinese A-shares will be a huge part of international index funds in the not-too-distant future.
The move to add Chinese A-shares to international stock indexes is long overdue. The index providers (like MSCI) are a bit behind.
My humble suggestion is that you get your money there first.
To give you the full story, index providers like MSCI do include something called "China" in their emerging-markets and China indexes... But for the most part, these are not actually shares trading in China – they are typically businesses trading in Hong Kong.
As we speak, MSCI is moving toward having more actual Chinese companies in its China indexes...
MSCI recently laid out its "roadmap to a comprehensive China equity index." It plans to move from zero percent in Chinese A-shares to 47.2% over time.
Let me repeat that, MSCI is going from zero percent in Chinese A-shares to 47.2% in Chinese A-shares. That's a huge jump!
That jump will obviously force index funds and exchange-traded funds (ETFs) to buy Chinese A-shares. Just like investors bought into Baidu knowing that index funds would be buying it soon, the same should happen in China-traded stocks.
Ultimately, I expect hundreds of billions of dollars will move into Chinese stocks in the coming years – all because of this change in the international China stock indexes.
The major change in MSCI's China indexes kicks off today, with the addition of Baidu (and similar names). But today's move is just the beginning... Today's move still doesn't include any Chinese A-shares.
Investors will scramble in the coming years to get money into Chinese stocks. Again, we're talking about the world's second-largest economy and the world's second-largest stock market. It will happen, in the not-too-distant future.
I suggest you get your money there first.
Good investing,
Steve
Further Reading:
Earlier this year, True Wealth Systems analysts Brett Eversole and Rick Crawford showed readers why stocks could soar 14% in the next year. "You might not believe it, but it's true," they write... "Based on history, when stocks go up, they tend to keep going up." Get the details here.
Last month, Steve noted another reason to stay in stocks. "This extreme alone isn't enough to make us incredibly bullish on stocks," he said. "But its message is powerful..." Learn more right here: This Rare Extreme Points to Higher Stock Prices.
Market NotesTHIS UNSTOPPABLE TREND IS STRONGER THAN EVER Today's chart shows that selling beer continues to be one of the most reliable businesses in the world...
Longtime DailyWealth readers know that "selling the basics" is one of our core investing ideas. Contrary to popular belief, you don't need to invest in complicated businesses to make money. As we've proven many times over the years, "boring" works. And perhaps one of the best examples of this theme at work is Anheuser-Busch InBev (BUD).
Anheuser-Busch is the world's largest beer brewer. Its portfolio of brands includes Budweiser, Corona, Beck's, and Stella Artois. And it has a big "footprint" in many of the world's fastest-growing economies. Dominating the global market for a product like beer is extremely valuable... so it's no surprise that Extreme Value editor Dan Ferris recommended shares of the World Dominator in 2010.
As you can see from the chart below, readers who took Dan's advice are up as much as 160%. And shares have soared as of late, striking a new all-time high on news of a merger with competitor SABMiller. It's one of the surest bets you can make: Having a beer after work will never become obsolete...
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