"If the Chinese stocks are estimated to increase in value," reader Garrett S. wrote in and asked, "how does this reconcile with the approaching bear market in the U.S.?"
Said simply: Can Chinese stocks go up if U.S. stocks are crashing?
It's a great question (thank you, Garrett!). And it's one I will answer much more in-depth in future issues of my paid newsletter on China, True Wealth China Opportunities.
Today, I want to look at one simple example of what happens to Chinese stocks when U.S. stocks are in a bear market...
As regular readers know, I'm bullish on Chinese "A-shares" – stocks that trade locally on the Chinese mainland. Hundreds of billions of dollars will start to flow into these stocks over the next five years... which means our opportunity is huge, even if U.S. stocks eventually enter a bear market.
Let's look at the last time U.S. stocks had a "Melt Down"... and what happened to Chinese A-shares during that crash...
U.S. stocks peaked in March 2000. After the peak, the Nasdaq Composite Index lost 70% of its value by September 2001.
This chart shows what happened to Chinese A-shares during the final inning of the last great "Melt Up"... and the subsequent bust. Take a look:
As you can see, during the first three months of 2000, Chinese A-shares soared, right in line with the Nasdaq.
Then, the Melt Down in U.S. stocks arrived in March 2000. The Nasdaq crashed.
But look at what happened to Chinese stocks... They kept going up!
During the biggest U.S. stock crash of our lifetimes, Chinese stocks soared 64% – to all-time highs.
When Chinese stocks move, they REALLY MOVE – regardless of what's going on in the U.S.
Three separate times in the last dozen years, the entire index of Chinese A-shares has delivered triple-digit returns within 18 months.
Don't get me wrong. Chinese stocks DON'T ALWAYS go up when U.S. stocks go down.
The important thing to know is this: Out of all the major stock markets, China is the least correlated to the U.S.
When U.S. stocks fall, European stocks will likely fall. Japanese stocks will likely fall, too – but Japanese stocks are less likely to fall than European stocks. They are slightly less correlated to U.S. stocks, based on history.
Chinese stocks are yet another step removed beyond Japan...
Simply put, China's stock market is not as affected by what happens in the U.S. stock market, compared with most other countries.
This correlation has been changing...
As China becomes more open and more integrated with the global economy, China's stock market is becoming more correlated to the rest of the world than it used to be. But it is still the least correlated major market to the U.S. stock market.
To sum it up... could Chinese stocks fall if (and when) the U.S. stock market falls? Absolutely! But they don't have to. And they will probably fall less than other assets.
So are Chinese A-shares a good investment for the next five years? Absolutely!
Good investing,
Steve
P.S. Just one week from today, the first Chinese A-shares will appear on MSCI's major global indexes. This move will send hundreds of billions of dollars flowing into China over the long term... And two of the top stocks could see more than $484 million right off the bat. You need to get your money there first!
To learn how to access our best ideas as this major shift takes place, click here. (This link does not go to a long promotional video.)
A key tip you need to know before investing in China...
You must understand this before you invest in China. Get it wrong, and your investment is likely to fall alongside the U.S. market during a crash. Get it right, and it could rally while U.S. stocks fall...
THIS MEDICAL-DEVICES COMPANY IS RIDING A GENERATIONAL TREND
Today, we've got reassurance that the bull market in health care is marching on...
Longtime readers are familiar with our colleague David Eifrig's bullish call on health care stocks. About 74 million people make up the Baby Boomer generation. As they rely more on medicine, testing, and hospital visits, companies in this sector will continue to have a deep pool of customers.
That includes businesses like Boston Scientific (BSX). The $42 billion company manufactures medical devices such as pacemakers, catheters, and stents. Its products are used in several fields, from radiology and cardiac surgery to treating cancer. As the Baby Boomers age, demand for Boston Scientific's devices will likely increase. Sales reached roughly $2.4 billion in the first quarter... a 10% increase over the prior year. In fact, across most of its business segments, the company recorded growth around 10%.
As you can see below, Dave's thesis is playing out... Over the past three years, BSX is up 70%, recently hitting a multiyear high. As the largest living American generation today approaches its twilight years, expect the health care industry to thrive...
