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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,

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

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Lennar (LEN)... homebuilder
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U.S. Concrete (USCR)... concrete
Caterpillar (CAT)... heavy machinery
General Dynamics (GD)... "offense" contractor
Lockheed Martin (LMT)... "offense" contractor

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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