Your Chance to Profit From the 'Greatest Anomaly in Finance'
Editor's note: It's our great pleasure to feature our friend and colleague Steve Sjuggerud in today's Digest.
Steve launched his True Wealth China Opportunities advisory last fall to take advantage of the huge bull market he foresaw in Chinese shares. And folks who were bold enough to take his advice have done incredibly well so far... Since the beginning of 2017 alone, Steve's open portfolio is averaging a 52% return, including three triple-digit winners of 276%, 120%, and 118%.
Unfortunately, you likely weren't among them... You see, our records show that just 5% of our readers have even seen Steve's remarkable China research to date.
But it's not too late... Steve remains as bullish as ever today. In fact, as you'll see below, despite the incredible returns True Wealth China Opportunities subscribers have seen so far, he believes the biggest gains are just around the corner...
China's president just launched a new era for investors... $1.7 trillion is headed into Chinese stocks over the next two years... Your chance to profit from the 'greatest anomaly in finance'... One of Sjug's favorite China investments is dirt-cheap today... How to get True Wealth China Opportunities at a huge discount...
Xi Jinping slept on a straw mat in a flea-infested cave in rural China for seven years...
It was part of his "re-education."
You see, Xi's father was a founding member of the Communist Party of China. But this hurt, rather than helped, Xi when his father fell from power.
He was seen as a privileged "princeling." And the Communist Party didn't want him.
Xi underwent years of hard labor in the fields of Liangjiahe to "cleanse" him of his affluent upbringing.
Xi was rejected by the party 10 times. It finally accepted him in 1974.
Today, Xi is the president of China...
Last month, Xi became not just an influential president, but the most powerful man in modern China – and one of the most powerful men in the nation's entire history...
China recently enshrined his thoughts, ideology, and even his name in its constitution. It's a symbolic gesture that elevates Xi to the same status as famed Chairman Mao Zedong. Based on this, his influence in China will extend for potentially decades to come.
Importantly, one sentence he said during a three-and-a-half-hour speech will change the way hundreds of billions of Chinese people invest their money – starting now.
It could end speculation on housing prices in China as we know it. And it could usher in a new era of investing... one that will send another $1.7 trillion pouring into the Chinese stock market.
In an article titled, "China's Giant Ball of Money May Be Headed Back to Stocks," Bloomberg wrote...
Chinese equity holdings will swell by up to 11 trillion yuan ($1.7 trillion) in the two-and-a-half years through end-2019, amid policies to clean up the financial system, Morgan Stanley predicts.
$1.7 trillion in Chinese stocks by 2019? What's going on here?
One sentence will change the Chinese investing landscape forever...
China's Communist Party wrapped up its 19th Party Congress last month. This is a big deal...
The Party Congress only happens once every five years. Thousands of party officials and nine research committees attend. Twenty-five think tanks submit reports. It's big.
During President Xi's three-and-a-half-hour opening speech, one sentence stood out: "Houses are built to be inhabited, not for speculation."
With that one sentence, Xi declared the party's intentions. I interpret that in one way...
It's time for Chinese investors to move on from the property market and into the stock market.
We won't officially know until next month how China will implement regulations limiting speculation in property. That's when China will hold its Central Economic Work Conference.
But we do know that this is a big deal...
In the past, the Chinese people have done different things with their money than Americans...
They save lots of it. And they put the rest into property.
The stock market is nearly irrelevant to most of them. When the Chinese stock market first opened in the 1990s, it only offered trading in boring, state-owned companies and had limited reliable information for investors.
The Chinese stock market has modernized significantly since those humble beginnings. But most Chinese still think of the stock market like it was – as a place for gamblers, not investors. And that's a fair assessment...
In the last dozen years, the Shanghai Composite Index has risen more than 100% three separate times. Gamblers run it up like they're winning the lottery, and then it crashes back down.
Take a look...
So historically, China's stock market hasn't been a place Chinese investors put money for the long term...
But thanks to that one sentence from President Xi, that is all about to change...
That sentence marks the end of Chinese gambling in the stock market – and the start of a new era for investors.
"Real" investors in China have bought property – and that's about it. That has led to some serious imbalances in the property markets. A decent apartment in Beijing costs $1 million or more. Shanghai is even more expensive.
Buying an apartment in China's largest cities is nearly impossible for the average person.
Now, Xi and the Communist Party have announced their intentions to do something about it.
The housing market will become less of an investment vehicle. The stock market will take its place. Morgan Stanley agrees – and says that $1.7 trillion will go into Chinese stocks by 2019.
This is the beginning of the institutionalization of the Chinese stock market. This is the end of the gambler's market in China... and the start of the modernization of China's stock investors.
So... how can you profit from it?
I can't believe nobody is talking about this...
Many Chinese companies trade in both Hong Kong and in mainland China.
That shouldn't be a big deal. For example, software titan Microsoft (MSFT) trades in Germany when it's not trading in the U.S.
But it is a big deal in China... because even though the shares in Hong Kong (H-shares) and shares in China (A-shares) are identical, H-shares often trade at a huge discount to A-shares today.
Said another way, Chinese A-shares trade at a huge premium to the exact same stocks trading in Hong Kong.
As of last month, it was 27%. That's one of the largest premiums we've ever seen. Take a look...
That means shares that trade in Hong Kong need to rise by 27% to equal the price of their China-traded twins.
This gap shouldn't exist... but it does.
I expect this gap will disappear over the next five to 10 years as China continues to open up its financial markets.
These heavily discounted Chinese companies trading in Hong Kong are super-cheap today...
Outside of Russian stocks, Hong Kong-listed Chinese stocks are now the cheapest blue-chip stocks in the world.
To get an idea of just how cheap they are, let's compare them with the main U.S. blue-chip index – the S&P 500.
Price-to-book (P/B) value is the simplest measure of valuation. Book value is a rough measure of liquidation value.
Hong Kong-listed Chinese stocks – as measured by the Hong Kong Stock Exchange Hang Seng China Enterprises Index ("HSCEI") – currently trade right around book value. U.S. stocks trade at more than three times book value.
Take a look...
For the value of these stocks to trade in line with U.S. stocks today, the entire H-shares index would need to soar threefold!
H-shares aren't just cheap based on P/B value alone... They are dirt-cheap just about any way you slice it.
You see, the HSCEI also trades for a single-digit price-to-earnings (P/E) ratio of 9.5. The S&P 500 is much more expensive, trading at a P/E ratio of 21.7.
Again, the HSCEI would have to soar by triple digits percentagewise just to trade at a similar P/E to the S&P 500.
So how can you take advantage of this incredible value?
The simplest way is through the iShares China Large-Cap Fund (FXI).
While FXI isn't supposed to be exactly the same as the HSCEI, it sure has tracked it over the past decade. Take a look...
The chart shows the massive correlation between FXI and the HSCEI. This is because the top four holdings in the HSCEI are four of the top six holdings in FXI. By buying FXI, you're buying Chinese companies at a massive discount...
In short, you can buy into the second-cheapest group of blue-chip stocks on the planet – at a massive discount to U.S. stocks.
And on top of that, these H-shares are trading at a steep discount to their identical twins in China.
FXI is one of my favorite ways to play China right now...
Triple-digit upside is possible as H-shares rise from dirt-cheap valuations.
But I've shared a way to make even larger profits with my True Wealth China Opportunities subscribers as well. In fairness to them, I can't share it with you today. But my readers are already up 75% since February... And the upside from here is dramatically larger than FXI.
China's giant ball of money is moving out of property and into stocks. No matter how you do it, I urge you to position your portfolio to profit now.
Fortunately, if you're interested in my True Wealth China Opportunities research, I have great news... Right now, you can gain LIFETIME access to True Wealth China Opportunities for less than the normal cost of a single year. But if you're interested, you must act quickly... This offer closes tomorrow – Tuesday, November 28 – at midnight Eastern time. Get the details here.
New 52-week highs (as of 11/24/17): Amazon (AMZN), Alibaba (BABA), First Trust Nasdaq Cybersecurity Fund (CIBR), iShares MSCI Japan Fund (EWJ), iShares MSCI Singapore Capped Fund (EWS), Facebook (FB), Fidelity Select Medical Equipment and Systems Fund (FSMEX), Grubhub (GRUB), ETFMG Prime Mobile Payments Fund (IPAY), iShares U.S. Home Construction Fund (ITB), AllianzGI Equity & Convertible Income Fund (NIE), Nvidia (NVDA), Overstock (OSTK), ProShares Ultra Technology Fund (ROM), Sabine Royalty Trust (SBR), iShares MSCI India Small-Cap Fund (SMIN), ProShares Ultra S&P 500 Fund (SSO), ProShares Ultra Semiconductors Fund (USD), VF Corporation (VFC), Verisign (VRSN), and Wells Fargo – Series W (WFC-PW).
Are you a True Wealth China Opportunities subscriber? We'd love to hear how you've done so far. Let us know at firstname.lastname@example.org.
November 27, 2017