China's government intervened in the stock market last week...
That might sound like an extreme thing to do. But with all the talk of trade wars with the U.S., Chinese stocks were falling – until China's "National Team" of state-backed investors stepped in and started buying blue-chip Chinese companies to prop up the market.
"China's so-called National Team of state funds has a long history of smoothing swings in the country's $7.7 trillion stock market, particularly during big down days," Bloomberg News wrote on Friday.
It might seem like Big Brother is stepping in... which is typically not a good thing.
But governments do it all the time... and it's often worked...
For example, Japan's central bank now owns 75% of Japanese exchange-traded fund ("ETF") assets. It owned zero ETFs less than a decade ago.
And Japan's stock-buying has certainly helped push Japanese stocks higher. Japan's benchmark stock index hit 26-year highs in January.
Likewise, China's National Team has historically bought huge chunks of the Chinese market...
In 2015 – one of the last times it happened – CNBC reported: "One member of the team, China Securities Finance Corp, the main conduit for the injection of government funds, owned 742 different stocks at the end of September, up from only two at the end of June."
This time, the group began buying blue-chip names including China Life Insurance and China Petroleum & Chemical.
It worked... By the end of Friday's trading, both of those stocks bounced back from their morning lows. And China's large-cap index lessened its drop to 2.9% from 4.6%.
Investors are scared. But instead of being scared, we should see this as a buying opportunity for Chinese A-shares...
Chinese stocks are getting a huge tailwind...
Right now, China's government is buying Chinese stocks. And very soon, large international investors are going to start buying Chinese stocks, too.
You see, index provider MSCI is about to start including Chinese stocks in its benchmark emerging markets index. The first round of inclusion happens in May, just a couple of months from now.
So we have a situation where investors are scared, but we KNOW there is a "backstop" or "floor" to the markets – courtesy of the government buying stocks and international investors about to buy.
Plus, I believe all this "trade war" talk will go away...
I could be wrong, of course. But a trade war would only hurt both countries. Instead, I expect it's mostly posturing to get some sort of concessions.
Regardless, China's National Team will keep buying to prop up the markets. And big institutions will start buying soon, as the MSCI's inclusion is around the corner.
Let's get our money there first.
The easiest way to do it is to invest in a fund that is benchmarked to the MSCI China A Inclusion Index. That means it owns the stocks that will be included... and that will benefit as institutional money starts flooding in. That fund is the KraneShares Bosera MSCI China A Fund (KBA).
This is a great moment – a great opportunity. Take advantage of it...
Good investing,
Steve
Further Reading:
Steve is bullish on China. And one of the biggest reasons is MSCI's decision to include Chinese A-shares in its indexes. "I can't overstate the importance of this change," he writes. "It will affect just about every investor on the planet." Learn more here: A Historic Change Is Underway in Chinese Stocks.
"Chinese A-shares are my top investing idea for the next five years," Steve says. In this essay, he reveals another way to get in on this opportunity... at an incredible value. Read more here: How to Buy China – At a Huge Discount.
China's "National Team" is setting a floor for Chinese stock prices. It also has a history of owning shares of China's big banks. That means buying the largest bank in the world (based on assets) is a good idea today...
HIGHS AND LOWS
NEW HIGHS OF NOTE LAST WEEK
Shopify (SHOP)... e-commerce powerhouse
Etsy (ETSY)... online marketplace
E-Trade Financial (ETFC)... online brokerage
Square (SQ)... digital payments
Paycom Software (PAYC)... human-resources software
Adobe Systems (ADBE)... software
Burlington Stores (BURL)... discount clothing
Guess (GES)... clothing and accessories
Tapestry (TPR)... luxury purses
Bloomin' Brands (BLMN)... casual-dining restaurants
SodaStream (SODA)... do-it-yourself soda
NextEra Energy (NEE)... "boring" utility
Progressive (PGR)... insurance
Rayonier (RYN)... timberland
Southern Copper (SCCO)... copper
NEW LOWS OF NOTE LAST WEEK
ExxonMobil (XOM)... oil and gas
Altria (MO)... tobacco
CVS Health (CVS)... drugstores
General Electric (GE)... debt-ridden industrial giant
GoPro (GPRO)... wearable cameras
Dish Network (DISH)... "cord cutting" victim
Comcast (CMCSA)... "cord cutting" victim
CBS (CBS)... television
