The Day of Reckoning Is Just a Few Weeks Away
Editor's note: $1 trillion is set to flow into Chinese stocks.
It won't happen overnight. But it will affect practically everyone who has a 401(k) or IRA.
As Steve Sjuggerud explains in today's Masters Series essay – adapted from the April issue of True Wealth China Opportunities – it's a matter of when, not if...
The Day of Reckoning Is Just a Few Weeks Away
June 20, 2017 will be one of the most important days in the history of investing...
On that one day, big investors will be forced to change the way they invest.
On that day, MSCI – the leader in global stock market indexes – will announce the results of its annual meeting to make any changes to its index weightings.
This time around, the changes should be historic...
I predict – for the first time in history – Chinese A-shares will finally be included in MSCI's global indexes.
This is big...
Right now, roughly zero percent of American retirement assets are invested in local Chinese A-shares. But that will all change when MSCI includes local Chinese stocks in its indexes.
What will happen is – whether they realize it or not – Mom and Pop America will end up owning Chinese stocks in their retirement funds. Here's why...
94% of U.S. pension funds that are invested in global stocks are benchmarked to MSCI's indexes. So if you're a teacher, a firefighter, or anyone else with a decent pension fund, you will unknowingly start owning local Chinese stocks for the first time... very soon.
Ultimately, hundreds of billions of dollars will flow into Chinese stocks as this process unfolds – regardless of whether they're a good buy or not.
So my suggestion for this "fat pitch" is simple – get your money there first!
This announcement is just a few weeks away. I predict it will happen on June 20. But it could come earlier than that. In 2014, MSCI announced the results of its annual index changes on June 10. And in 2015, it announced them on June 9.
So how will this all go down?
This is important for us to understand as speculators...
It's not going to happen in a day. MSCI recognizes that up to a trillion dollars will ultimately flow into these stocks because of its decision. It doesn't want to wreak havoc on the global financial system. It would rather let the money trickle in.
Our "working script" is that over the course of roughly five years, China will go from no stake in the global indexes to its full stake in these indexes.
Therefore, we have a five-year, few-hundred-billion-dollar tailwind as we buy one of the world's cheapest markets.
So what will happen at the June announcement – and afterward? What's the script look like for local Chinese stocks finally becoming a part of the global indexes?
We'll cover the full details today and tomorrow... including exactly what we can expect from MSCI's announcement and what it means for Chinese stocks in the coming months and years.
Let's get started...
Our Working Script for China to Join the Global Indexes
The coming announcement from MSCI will trigger a massive change in global finance.
When all is said and done, ALL Chinese stocks will make up roughly 40% of the MSCI Emerging Markets Index. (This number includes local Chinese stocks PLUS all other Chinese stocks, including Hong Kong-listed ones.)
But it won't happen overnight.
There are three major dates that make up the MSCI timeline. And I believe the first is just weeks away. Here's why...
My True Wealth China Opportunities readers know this story.
China is the world's second-largest economy... And when you add up the Shanghai and Shenzhen stock exchanges, China is the world's second-largest stock market.
MSCI is the world's leading index provider. China being left out of major emerging market indexes is a wrong that needs to – and will – be righted.
Right now, Hong Kong-listed Chinese companies (known as H-shares) and overseas-listed Chinese companies – like Alibaba (BABA) and Baidu (BIDU) in the U.S. – make up 26% of the MSCI Emerging Markets Index.
But despite being the world's second-largest stock market, local Chinese stocks (known as A-shares) make up zero percent of MSCI's main emerging markets index.
Take a look...
Importantly, this leaves out China's local A-share stock markets – the Shanghai and Shenzhen stock markets – which are worth around $7 trillion.
This makes no sense. And it's a truly ridiculous situation in global finance. How can a global emerging markets index be legitimate if it leaves out local Chinese stocks with $7 trillion in market value?
It can't. And this must change.
That's why I believe the first of our three dates is right around the corner. Tomorrow, I'll explain why June 20 is only the beginning...
Good investing,
Steve Sjuggerud
Editor's note: Steve called the bull markets in gold (in 2003), stocks (in 2008), real estate (in 2010), and biotech (in 2012). And today, he's focusing his attention on China. Steve and his research team have built an entire portfolio designed to maximize the gains in what he believes could be one of the greatest bull markets we'll ever see. Readers who get in now could be sitting on gains of 500% to 1,000% over the next few years. Get started here.