Here's Why Chinese Stocks Are a Double in Waiting
Editor's note: Steve Sjuggerud is super-bullish on China.
We suspect longtime Digest readers are letting out an audible groan just reading that.
But as Porter often says, we aim to give you the information we'd want if our roles were reversed... So when Steve practically begs folks to learn more about the growing opportunity in China, we feel it's our duty to make sure you hear his message.
In today's Masters Series – adapted from the April issue of True Wealth China Opportunities – Steve explains why investors need to get in before the huge May 31 deadline... and explains why China's entire stock market could double within a period of just 18 months...
Here's Why Chinese Stocks Are a Double in Waiting
On Monday in Boston, I shared the stage with the most important name in global investing – MSCI.
It was the first day of the China A-Share Inclusion Roadshow. I was one of the four speakers.
The name of the event might not sound very sexy. But to me, it was a historic moment... Everything I've been telling you about money flowing into China starts now.
I know we've made a lot of money so far on our China investments. But – and this may be surprising to hear – we still have plenty of upside potential.
In Boston, MSCI laid out
Soon, Everyone Will Be Talking About China
MSCI is the world's leading provider of international stock indexes. And it's a big deal.
According to its Boston presentation:
- $12.4 trillion is now benchmarked to MSCI's indexes.
- 94% of U.S. pension-fund assets invested in international stocks are benchmarked to MSCI indexes.
- 99 of the top 100 global investment managers are MSCI clients.
With $12.4 trillion invested based on its allocations, whenever MSCI makes a major change to its indexes, it counts. It can cause hundreds of billions of dollars to move.
That's why I say MSCI is the most important name in global investing.
It's also one of the biggest reasons for our China thesis – and one of my biggest reasons for starting True Wealth China Opportunities...
About two years ago, I started writing about a crazy situation in Chinese stocks.
I said, "I never imagined I would see a day where NOBODY was invested in the world's second-largest economy and the world's second-largest stock market."
That was the case with China back then. It had one of the biggest stock markets in the world – and still does – but it was completely left out of the world stock market indexes. Nobody owned locally traded Chinese stocks.
I'm sure this setup will never happen again in my lifetime.
I knew the situation with local Chinese stocks had to change... It was a wrong that needed to be
But how would it change?
To me, the obvious catalyst would be to add China's local shares (called A-shares) to the global indexes. That would force the hundreds of billions of dollars from foreign investors into local Chinese stocks. And it would right this wrong.
When the light bulb went off in my head, I thought it was the biggest story of my 25-year career in the markets. It was crazy to imagine – as much as $1 trillion could eventually flow into Chinese stocks, simply because institutional investors would have to buy them!
I launched this letter to position ourselves to take advantage of it.
So far, I've been right. We have 22 positions on our recommended list. Some of them have nearly doubled. Only one of them is down.
But this is just the beginning...
On May 31, the first local Chinese stocks will be added to MSCI's major indexes. That has never happened before.
Monday's Roadshow in Boston was just the start of getting the word out. On Tuesday, the show went to the New York Stock Exchange. MSCI will continue on the road over the next couple weeks... to keep educating institutional investors about what's coming.
As we approach the inclusion date, you will hear a lot more about this in the news.
As I write, we're barely hearing anything about it. But I expect that will all change by May 31.
You need to get your money there, first.
Why China's Path to Inclusion Could Mean Triple-Digit Gains in 18 Months
Before we start talking about what to buy, we need to go over what this inclusion process will look like... and when the most money will start pouring in.
MSCI is taking this process in baby steps, to see how it goes. In May, it will only add 2.5% of the total number of A-shares it plans to include. Then it will add another 2.5% at the market close on August 31 – for a total of just 5% of the full 100% inclusion amount.
The next MSCI date to watch is in mid-June... That's when MSCI will announce its plans for 2019.
Will it increase the percentage of Chinese stocks in its indexes? What will the next steps look like?
MSCI did not want to give any clues. However, the speaker from MSCI did say to "look to Taiwan as an example."
OK. Let's look at Taiwan...
It ultimately took five years for "full MSCI inclusion" for Taiwan – from 1996 to 2001.
So that's a good historic example of how this process could work with China. And we were specifically told to look at it!
Importantly, it was not a smooth stair-step path. MSCI increased Taiwan from 65% to 80% in late 2000. Then it bumped it to 100% inclusion.
We will likely see MSCI take a similar path this time...
So let's assume a five-year path for China. But let's assume it will be slow at first (for MSCI to make sure there are no market hiccups), and then it will speed up toward the end – similar to Taiwan's path.
So the biggest dollar flows into China will happen toward the end of this cycle.
"But Steve," you're probably thinking, "don't you think investors will catch on before that happens?"
I do. And because of that, I expect we will see a triple-digit move in 18 months in Chinese stocks – sometime in the next five years.
That would be a crazy prediction in any other market – except China.
You see, it has already happened – three times in the last dozen years! Take a look...
This is the kind of growth potential you can find in China when the gains start to take off.
My friend, I have been writing to you for years about the hundreds of billions of dollars that will flow into Chinese stocks.
That flow starts this month. And it will likely last five years. In that time, I expect we could see a triple-digit move in 18 months – in the entire Chinese stock market.
Let's get our money there first.
Good investing,
Steve Sjuggerud
Editor's note: Steve is bullish on the entire Chinese stock market. But he says that tens of billions of dollars are about to start flowing into two stocks
That's why he just put together an urgent presentation detailing this incredible opportunity. But you have to act fast... because the biggest gains will start on May 31 at 3:59 p.m. See Steve's presentation – without sitting through a long promotional video – right here.