But this $16 billion cash injection is a huge story. One that I’ve covered in Real Wealth
And it’s just the beginning.
It’s also the reason why I see huge upside in this one stock market over the next five years.
Let me explain…
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MSCI inclusion of Chinese A-Shares will see billions flow into the stock market
I’m talking about the continued inclusion of local Chinese stocks from global index provider MSCI.
This is short of it…
Until 2018, global index provider MSCI didn't include local Chinese A-shares in its stock market indexes. So if you invested in the MSCI Emerging Markets Index, for example, you weren't actually buying any stocks trading in mainland China.
However, MSCI started to move a small portfolio of local Chinese stocks to its emerging markets index.
It added just 5% of the eventual inclusion amount. And that meant billions of dollars flowed into A-shares.
This was just the beginning…
In three stages, MSCI announced it will quadruple the weighting of A-shares in its emerging markets index this year.
The first shift happened on 28 May 2019. This saw A-shares weighting double from 0.9% to 1.8%.
You see, around $1.8 trillion in assets is benchmarked to the MSCI Emerging Markets Index. So an increased allocation of 0.9% sees around $16 billion shift into Chinese stocks, in one night.
Again, there are two more identical cash injections in August and November. And that would mean another $32 billion flowing into Chinese A-shares for this single index. That’s around $48 billion flowing into the stock market.
But this figure is peanuts compared to what investment bank, Morgan Stanley announced in a report in March 2019.
It said that over 10 years, China’s stock market could see $100 billion to $220 billion in annual inflows. That’s a total of $2 trillion that could flow into Chinese A-shares over the next 10 years!
I‘ve been waiting four years to share this with you...
If you bet on the cricket, you’ll have heard of these two.
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To the average punter, these two favourites don’t exactly scream ‘profit machines.’
But here’s the thing...
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Just a small sentiment shift could help kick off the next China boom...
Right now, many investors want nothing to do with China. Trade wars causing falling prices are scaring people out of the market. But if the major institutional investors get on board, and average investors follow, then that could really cause an avalanche of activity.
And investors like you, can make big money in Chinese stocks.
The fact is, China’s stock market has a history of soaring hundreds of percent quickly once it gets going... And a couple trillion dollars in inflows is the kind of thing that could kick off a frenzy.
Now, you may be thinking, what about trade wars and the impact it’s having on Chinese shares?
Well, simply the trade war is a short term problem. A deal will probably be reached by the end of this year. You see, tariffs are essentially bad for the US, as at the end of the day, either a US-based company pays the bill or passes these costs onto US consumers. This means, prices for goods rise and profits for companies, fall. Trump can’t afford not to reach a deal.
So if you look past the trade war, the potential for Chinese stocks to soar, over the long term is ample.
If you’d like to keep up with Chinese Shares, you can look at the iShares MSCI China ETF. This ETF tracks an index of investable Chinese shares covering all market cap sizes.
See you next week,
Managing Editor, Real Wealth