Potential big gains in Chinese stocks
Even though there are many signs pointing to a continued global economic slowdown, the Chinese stock market could be ripe for a surprise spike higher. The Shanghai Stock Exchange started the year with a bang, rising over 28%.
The SSEC is no stranger to volatility as we can see on the following chart. Back in 2006-2007 the SSEC had a massive bull market, spiking almost 450%. In 2015 it had another big jump gaining over 150% in a year-and-a-half.
Chinese stocks have been hated by global investors, but we believe that is a big mistake. China is the second largest economy in the world, with only the US being bigger, yet investors have ignored Chinese stocks. But that is now starting to change and if you want to get in on the next big China rally you had best get prepared now. Even Goldman Sachs recently posted a story suggesting Chinese stocks could rally 50% due to investors’ Fear Of Missing Out (FOMO). When we hear an investment bank like Goldman Sachs trumpeting gains of 50% for the entire Chinese market, that is huge. Typically, these banks are quite conservative in their estimates, so a 50% forecast is worth noting.
But understand that it is not simply the FOMO factor that could propel Chinese stocks much higher. Back in 2017 we alerted our subscribers to an opportunity to take advantage of an anticipated massive inflow of capital into China A-share stocks. The driver was that global index provider MSCI announced that for the first time it was going to include China ‘A’ Shares in their Emerging Market Index.
China A-shares are the stock shares of mainland China-based companies that trade on the two Chinese stock exchanges, the Shanghai Stock Exchange and the Shenzhen Stock Exchange. Historically, the shares were only available for purchase by mainland citizens due to China’s restrictions on foreign investment.
Think about that for a second. Here is the second largest economy in the world and MSCI Emerging Market Index did not include any China ‘A’ shares. But in June 2017, the MSCI Emerging Markets Index announced a two-phase plan in which it would gradually add 222 China A large-cap stocks.
From Investopedia: ‘In May 2018, the index began to partially include China large-cap A shares, which make up 5% of the index. Full inclusion would make up 40% of the index’.
The MSCI Emerging Markets Index has assets of approximately $1.7 trillion so as it keeps increasing the China ‘A’ shares portion of the fund, it means tens, then hundreds of billions, and potentially over $1 trillion will be flowing into Chinese markets in the near future.
We recently sent Trend Letter subscribers a couple of trades to play this potential windfall from capital flowing into Chinese shares. You do not want to be on the sidelines and miss what could be a massive bull market in Chinese stocks.
Stay tuned!