The 'Big Money' Is Now Moving Into China
Editor's note: Today, we're taking a break from our normal Digest fare to feature the second and final installment from our friend and colleague Steve Sjuggerud. (If you missed Monday's Digest, be sure to go back and read it.)
As we noted yesterday, since launching Steve's True Wealth China Opportunities advisory last fall, his portfolio has been a massive success. He's currently sitting on three triple-digit winners and average year-to-date returns of 50% across more than 20 positions in his open portfolio.
But chances are good you've missed out on these big gains. Despite his stellar track record, the vast majority of Stansberry Research readers haven't taken Steve up on his offer yet.
Fortunately, despite the big gains so far, Steve believes China is setting up for a "once in a lifetime opportunity" for investors today. And as he'll explain in today's Digest, the "big money" is finally starting to take notice, but you still have a chance to get your money there first...
MSCI's landmark decision is only the beginning... The 'big money' is now moving into China... Why trillions more are guaranteed to flow into Chinese markets... Your last chance to get your money there first...
In June, MSCI's decision surprised the world...
That's when the leading provider of global stock indexes announced a plan to include local Chinese stocks ("A shares") in its benchmark emerging markets index.
This decision was years in the making. It still caught most of the investing world by surprise... but not my True Wealth China Opportunities readers.
They knew the MSCI decision was on its way. And they got their money there first.
Chinese stocks have boomed in 2017. Our average portfolio position is up 50% this year. And those gains are likely to increase, thanks to the major MSCI announcement.
But I have a new message, one that I'm positive most investors simply won't believe...
MSCI's June decision is only the beginning...
The biggest – and most explosive – flow of money into China is yet to come. And when it does come, it likely means several trillion dollars will flow into China.
You see, MSCI's landmark decision was actually small. It set us on the right track, but it will prove inconsequential compared with what's to come.
MSCI chose to include local Chinese A-shares in a single emerging markets index. That means a few hundred billion dollars will flow into Chinese stocks in the coming years. And including Chinese A-shares in other indexes will likely move that number to more than $1 trillion eventually.
But this is just the trickle that breaks open the floodgates...
What MSCI's decision really did was make it OK to move money into China. It told large investors that buying China isn't foolish. It's the first step to becoming a mainstream idea.
That sentiment will help money flow into other Chinese markets – not just stocks. And that's where the BIG money is.
The big money set to flow into China won't hit the stock market... It's headed for the bond market and other banking assets.
Investment bank Citigroup recently released a research report on the future of China's economy. It estimated more than $3 trillion will flow into these markets by 2025.
Today, I want to share some of these major coming changes. And you'll see that MSCI's decision is only the beginning of massive capital flows into China.
Let's get started by looking at the important sentiment shift in China, thanks to MSCI...
The 'big guys' are telling our story...
That was a major theme I told my readers about back in March.
At the time, the major investment banks had just started writing about the upcoming MSCI decision. And they had just started getting bullish (or at least, less bearish) on China.
Of course, my readers were way ahead of them. They knew the big-picture story meant massive upside potential. And they knew MSCI was almost certain to give China the "thumbs up" in June.
It all happened. And now, more of the big guys are coming around... or scrambling to get up to speed on Chinese stocks.
Not long after the MSCI decision, news outlet Reuters reported that a few major investment firms are finally opening up to the idea of owning China. According to the article...
Global fund managers are ramping up their presence in China, aiming to be well ahead of next June's inclusion of mainland-listed stocks into MSCI's benchmark index.
Wells Fargo Asset Management, Neuberger Berman, Fidelity International and Robeco are among fund houses sharpening their stock-picking skills in mainland "A" shares and hiring staff in China to get a first-mover advantage.
Why the sudden change?
Why are these shops now interested in Chinese A-shares?
It's not because they now love the idea of owning Chinese stocks.
It's not because they see it as a bulletproof investment.
They're moving in for one reason: They have to!
These firms have to move into China now that MSCI has made its landmark announcement. They can either adapt or fall behind their competitors.
Private investment-management firm Neuberger Berman plans to relocate its Chinese equity research shop from Hong Kong to mainland China, according to Reuters. And more than 20 global managers have set up investment subsidiaries in China, including Fidelity, Vanguard, and Allianz.
These folks are behind the curve. They haven't focused on China. At least, not well enough. But they must now.
Hundreds of billions of dollars must flow into China's stock market, thanks to June's MSCI announcement. But more important, MSCI made it OK to own China.
I wouldn't go as far as to say China is "hot" in the investment community. But folks are starting to realize that China isn't going away. And the big guys are taking it seriously now.
What's most exciting is that MSCI's decision is only the beginning...
The money that will flow into Chinese stocks as a result is great. But it's nowhere near the amount that's headed for China's bond market.
Citigroup is one of the big guys coming around to our way of thinking...
It released an 84-page report detailing the future of China's economy and markets. And like us, the bank believes MSCI's decision – while important – is only part of the story.
I've long said that the eventual MSCI inclusion will mean up to $1 trillion will flow into China's stock market.
Chinese A-shares should eventually make up 18% of the MSCI Emerging Markets Index. And roughly $1.7 trillion is benchmarked to the index today. That alone means $300 billion moving into the Chinese A-share market.
Of course, the MSCI Emerging Markets Index isn't the only game in town. Other index providers will now have to follow with their emerging market indexes. And MSCI will also have to include Chinese A-shares in other global indexes.
It follows the same logic as before... If MSCI has a global stock index, and China is 10% of global market cap, how could it not be included? This change is just getting started.
With the big guys setting up shop in China, hundreds of billions of actively managed dollars will likely flow into Chinese stocks as well.
Citigroup expects $200 billion to flow into Chinese stocks over the next several years. It also expects nearly $800 billion to flow into China's bond market.
That's a conservative figure...
You see, China's bond market is in a similar situation to China's stock market.
China is the world's second-largest economy and the second-largest stock market... Eventually, it had to be added to major global stock indexes.
It was an investment wrong that had to be righted. And China's bond market is in a similar position today.
China's bond market is currently the world's third-largest. It doubled in size from $4.8 trillion in 2013 to nearly $10 trillion at the end of 2016.
That's amazing to think about... a $5 trillion market doubling in just three years. And get this...
Financial-services firm UBS estimates that China's bond market will double in size again over the next five years. That's another staggering claim. But it's possible in China.
Despite its massive size and growth, China's bond market was completely left out of global bond indexes at the beginning of 2017.
This is another wrong that must be righted. And it's already starting...
In February, Chinese bonds were included in two Bloomberg indexes. Citigroup then added Chinese bonds to three of its indexes in March. These changes were limited in scope. They were either small indexes or new subindexes. So they haven't had a sweeping effect like MSCI's June stock announcement. But this is the beginning of a major shift.
It's only a matter of time until a major index provider adds Chinese bonds to a flagship index... and major global bond indexes begin holding Chinese bonds. When that happens, the eventual flows will be huge...
Citigroup estimates $800 billion will flow into China's bond market by 2025, thanks to coming changes. But that number will also likely prove conservative.
The true flow will likely be several trillion dollars flowing into China's bond market in the coming years.
According to Citigroup, China should command roughly 5%-10% of global bond indexes. Today, the major bond indexes have a 0% weighting to China.
In addition, the global market for government bonds is around $60 trillion. And the total global bond market is more than $200 trillion. It's easy to do the math...
A move of just 1%-2% of a $200 trillion-plus market is a huge flow of money... likely several trillion dollars when all is said and done.
We don't have a specific timeline for when or how these shifts might happen. But we know they're coming. They have to happen eventually. And that gives us an opportunity.
Once again, my advice is simple: Get your money there first!
This is an inevitable shift...
And the time to position your portfolio to profit is now.
Out of fairness to my True Wealth China Opportunities subscribers, I can't share my specific recommendations for profiting from these coming flows into the Chinese bond market.
Fortunately, until midnight Eastern time tonight, you can get instant access to all of my China stock and bond research at a steep discount. In fact, we're offering lifetime access to True Wealth China Opportunities for less than the normal cost of a one-year subscription.
We may not be able to make this offer at this price point ever again... So if you've been on the fence about trying my True Wealth China Opportunities research, I urge you to take us up on this deal before it's too late. Get the full details here.
New 52-week highs (as of 11/27/17): Amazon (AMZN), First Trust Nasdaq Cybersecurity Fund (CIBR), Cisco (CSCO), iShares Select Dividend Fund (DVY), Facebook (FB), Franco-Nevada (FNV), Alphabet (GOOGL), Grubhub (GRUB), ProShares Ultra Technology Fund (ROM), and iShares MSCI India Small-Cap Fund (SMIN).
In the mailbag, several readers write in to share their results following True Wealth China Opportunities recommendations. We'd love to hear how you've done. E-mail us at email@example.com.
"Just wanted you to know that I have banked over $12,000 in profits in my Scottrade Account from China Opportunities investments. My account has grown from about $38,000 to over $50,000, since I started investing in China Opportunities recommendations. I have been following Steve's research for years. I am very satisfied with my China Opportunities subscription. It has more that paid for itself several times over. Thanks, Steve." – Paid-up subscriber John D.
"Hello Stansberry Gang, I have been with Steve for over a year in the China Opportunities the gains are incredible, 79% ,21%, 20%. Looking forward to more of the same. I keep my position sizes reasonable so my account is not up huge but doing very nice thank you. Also have some others from Stansberry Research. The best money I ever spend. Keep up the great work guys!!" – Paid-up Alliance member L. Faust
"I made a good amount of money in China Opportunities. I was skeptical in the beginning. After six months since you started I began buying Chinese stocks/ Now I have 1/3 invested in Chinese stocks 1/3 in Melt up Portfolio- both in IRA and Individual. Rest 1/3 in DailyWealth Trader Recos, Porter Stansberry and Dr. David Eifrig. Thank you very very much for teaching Position Audit, Diversification, cutting losses early, trailing stop loss and let the winners ride. I am a long time subscriber since beginning of SA." – Paid-up subscriber Uppunda B.
"As of this PM, my china stocks are up 33% ($19,595) as a group. [Position 1] up 99.2%, [Position 2] up 74.4%, [Position 3] up 62%, 2 more in the 40's, 2 more in the 30's, 7 more in the 20's, and none less than 4%. Thank you for all of it." – Paid-up subscriber Bob Jacobson
"Hi Steve, I worked into your Chinese recommendations, slowly, since inception. This was based upon my conservative approach and the outrageous brokerage fees my Canadian broker wanted for trading in HK. I believe I now have bought all the stocks listed in the US and I am thrilled with the results! My lowest return so far is 22% and my highest is 77%, translating to well over $30,000. I think this is exceptional and I can't thank you and your team enough. I am, of course, looking for these returns to continue and I will keep on investing, as I can afford to and as you recommend." – Paid-up subscriber Nick Garland
"I've invested principally in the tech and A-shares/FXI part of the strategy and it's done great. Up roughly 30% in 6 months." – Paid-up subscriber Patrick M.
"Steve has been right on as usual with his True Wealth China [Opportunities] Hypothesis, Looking forward to the nest 5 years, Thank you, Steve and staff!!!" – Paid-up Alliance member Mark B.
Steve Sjuggerud November 28, 2017