The Next Big Step for Chinese Stocks Is Here
Sjug's bold prediction continues to play out... The next big step for Chinese stocks is here... But most investors couldn't care less... More good news for one of our favorite 'forever stocks'... A second chance to watch our Bear Market Survival Event...
Regular readers know our colleague Steve Sjuggerud has been incredibly bullish on Chinese stocks...
And one of the biggest reasons has to do with a landmark decision by global index provider MSCI.
In short, MSCI announced nearly two years ago that it would begin to include domestic Chinese stocks – known as "A-shares" – in its global market indexes for the first time.
This decision will ultimately cause hundreds of billions of dollars to flow into these stocks, almost regardless of what else is going on in China or the global economy.
However, due to the massive size of this shift, MSCI can't simply make it overnight...
It would be too disruptive to global markets. Instead, MSCI is carrying it out in a series of progressively larger steps over several years.
The first step took place last May, when MSCI added a small number of A-shares to its Emerging Markets Index, equal to 2.5% of its long-term inclusion goal. In August, it doubled the inclusion to 5% of its long-term goal.
Together, these two moves brought the total weighting of A-shares to roughly 0.75% of the total index.
This month, MSCI is set to begin another round of inclusions...
And this one will be the biggest yet – by far. As the Wall Street Journal reported this morning...
MSCI will begin raising the weight of mainland China stocks, called "A shares," in several of its indexes later this month. It is the first of three increases that will quadruple the weight of A shares in the MSCI Emerging Markets Index to 3.3% by the end of the year.
This round will raise the "inclusion factor" of Chinese A-shares from 5% to 20% of MSCI's long-term goal. As a result, roughly $50 billion of additional money will flow into these stocks by the end of this year.
However, as the Journal noted, even after this quadrupling, Chinese A-shares will still have a total weight of just 3.3% in the MSCI Emerging Markets Index. That's just over one-sixth of the final intended weighting of 18%.
In other words, this massive, multiyear trend is just getting started.
Chinese stocks are already off to a great start this year...
Even after pulling back a bit recently, they're still leading global markets higher. The benchmark Shanghai Composite Index is up nearly 20% year-to-date, compared to a little more than 15% for the S&P 500 Index.
Given this outperformance, you might assume investors would be falling over themselves to own Chinese stocks. But you would be wrong. As a separate Wall Street Journal report noted on Wednesday...
2019 was meant to be the year many Western investors began buying Chinese stocks. It is turning out to be the first year many investors began selling them...
Foreign investors are offloading shares listed in Shanghai and Shenzhen through Hong Kong's flagship Stock Connect platform. In the 20 trading sessions up to May 14, they sold so-called A-shares, worth 52 billion yuan ($7.56 billion), net of purchases – by some distance the largest amount on record...
Overseas investors had barely ever sold equity on a net basis through the Stock Connect system before. Last year, when the MSCI China A Onshore Index fell roughly 31%, the drawdowns lasted no more than a few days and ran to a fraction of the size of the current one.
Let that sink in for a moment...
Chinese stocks are already beating virtually every other market in the world this year. And they're about to get a big potential tailwind from MSCI's next inclusion.
And yet, by this measure, investors are actually more bearish on Chinese stocks today than they were during the worst of last year's bear market decline.
If you're a believer in Steve's long-term bullish thesis, this is exactly the kind of contrarian situation you should want to see.
Here in the U.S., the outlook for one of our favorite 'forever stocks' continues to improve...
We reviewed the bullish case for entertainment giant Disney (DIS) in the April 15 Digest.
In short, the company's strong brand and incredible collection of "trophy assets" has never been in doubt. But the recent acquisition of fellow media giant 21st Century Fox is now helping the company revitalize its struggling media-network business as well.
In particular, the deal gave Disney a controlling, two-thirds stake in direct-to-consumer ("DTC") streaming platform Hulu.
Combined with its existing DTC offerings – sports-streaming service ESPN+ and its brand-new Disney+ service – Disney suddenly gained access to a full suite of live and on-demand content that could become a legitimate competitor to Netflix (NFLX).
But this week, the news got even better...
On Tuesday, Disney announced that it had struck a deal with cable provider Comcast (CMCSA) that gives the company 100% control of Hulu. As Bloomberg reported...
The accord announced Tuesday represents a big bet by Disney on continued rapid growth for Hulu, home of original hits such as The Handmaid's Tale. Under the terms, Comcast is guaranteed a $5.8 billion windfall by early 2024, when the cable giant can sell its stake to Disney...
Hulu will be a key weapon in Disney's growing online fight with Netflix Inc., and the deal gives the service access to programming from Comcast's NBCUniversal division for at least three more years. Disney expects Hulu to have as many as 60 million subscribers by fiscal 2024, up from 25 million last year, and is counting on it to complement the new Disney+ streaming service launching in November.
"We are now able to completely integrate Hulu into our direct-to-consumer business," Disney Chief Executive Officer Bob Iger said in a statement.
Stansberry's Investment Advisory subscribers are up more than 33% since Porter and his team recommended shares in April 2018. Meanwhile, Digest readers who took advantage of Porter's free recommendation of the company last summer (here and here) are up as much as 20% so far.
We'll end today with a bit of 'housekeeping'...
We had a great turnout for our first-ever Bear Market Survival Event last night. If you were among the nearly 30,000 folks who joined us, we hope you enjoyed it.
Unfortunately, we did hear from a small number of subscribers who experienced technical difficulties or were otherwise unable to tune in.
If you were among them, you're not out of luck. You can still watch a full video replay of the event right here. But please note, this free replay will only be available for a few more days.
New 52-week highs (as of 5/15/19): General Mills (GIS), Hershey (HSY), Match Group (MTCH), Nestlé (NSRGY), NVR (NVR), PepsiCo (PEP), Procter & Gamble (PG), Travelers (TRV), and W.R. Berkley (WRB).
In today's mailbag, several longtime subscribers weigh in on last night's Bear Market Survival Event. As always, send your comments, questions, and general concerns to feedback@stansberryresearch.com.
"Porter, I first must tell you that I bless the day I bit the bullet and joined as an Alliance Member. It was worth the cost then and you still keep adding value at an incredible pace. If our places were flipped, I doubt I could have approached providing such added value. My hat's off to you and all your team. Mic drop indeed.
"[Last night's] presentation was concise and seems logical. I am having minor surgery [today], so I won't get to unwrap the digital present until Friday. I can't wait. Thank you for the difference you all are making in so many lives, now and when winter comes." – Paid-up Stansberry Alliance member Robert H.
"Thank you! I learned a lot [about] how to become prepared. I have been following all your research over the years and I am confident that this will be good for my future." – Paid-up Stansberry Alliance member Jeffrey G.
"Those of us who became Alliance members years ago did so knowing that Stansberry Research offers more than just timely stock picks each week. We know that a sound retirement plan depends on more than having made more right choices than wrong ones. We need a plan and Stansberry is there to provide it. As we near the end of a market up cycle it is reassuring to know that our investment in Stansberry Research's advisory service is there to lessen our worries by forewarning us of market adversities by offering a six-step plan to benefit from the inevitable event. Thank you." – Paid-up Stansberry Alliance member Wayne S.
"Please, please, please, allow those of us who [were] are unable to watch at 8PM [last night] another opportunity to see this important presentation! I've been looking forward to it ever since it was posted and I'm heartbroken that I will miss it! Thanks so much!!!" – Paid-up subscriber Kit N.
Brill comment: Don't worry, Kit. As we mentioned earlier, we're making a full replay of this event available for a limited time. Click here to view it now.
Regards,
Justin Brill
Baltimore, Maryland
May 16, 2019