The Next Flood of Cash Hits China Tonight

Tonight, as markets close in the U.S., roughly $16 billion will flow into Chinese stocks.

It isn't based on the whim of one or two major investors...

And there's no chance this money shift won't take place.

The decision has already been finalized. And now it's legally required to happen, at 4 p.m. today.

You probably haven't heard about tonight's money shift, though. The mainstream press doesn't seem to care.

Still, this is one of three major shifts of cash into Chinese stocks that will happen this year. And the big story behind why this is happening explains why I have been – and continue to be – incredibly bullish on China.

Let me explain...

Investors have been glued to the trade-war news in recent weeks. It has caused major uncertainty, and prices have fallen.

I understand that it's scary in the short term. But when you think of China, you've got to look at the long term. And if you look past the trade war, the tailwinds for Chinese stocks are plentiful...

One of those powerful tailwinds is the continued inclusion of local Chinese stocks from global index provider MSCI.

This is a story I've been covering for years. And the next step happens tonight.

You see, for years, Chinese A-shares – stocks trading in mainland China – weren't included in the MSCI Emerging Markets Index. This is the major world index for emerging markets... And it left out one of the world's largest stock markets. It made no sense.

But that all changed when MSCI made a series of small inclusions last year... as the first step in a larger plan.

Right now, Chinese A-shares represent just 5% of their eventual weighting percentage in the MSCI Emerging Markets Index. And tonight, after market close, that weighting will double in one immediate shift.

That means Chinese A-shares will move to a weighting of 1.8%, according to MSCI – up from the current weighting of 0.9%.

This "small" shift will cause about $16 billion to move into Chinese stocks, overnight.

You see, around $1.8 trillion in investment dollars is benchmarked to the MSCI Emerging Markets Index. That means that an increased allocation of 0.9% forces around $16 billion to shift into Chinese stocks based on this single move.

This is just the start, though. The total amount of money will likely be much larger than $16 billion...

That's because MSCI is upping Chinese A-shares in other indexes – like its main China index – too. And active managers will likely be adding more Chinese A-shares to their portfolios because of this shift.

MSCI also plans to execute two more identical shifts later this year, in August and November. And that would mean another $32 billion flowing into Chinese A-shares for this single index.

Now, I know what you might be thinking...

"Steve, it all sounds great. But Chinese stocks are falling. The trade war is back on. Why does this matter?"

Remember, the trade war is a short-term concern. No one was worried about it two weeks ago. And I expect it'll be resolved soon.

And even if things don't get settled for months, it's still a short-term problem compared with the multiyear upside potential in China... thanks to huge money shifts like the one happening tonight.

The money moving into Chinese stocks is a tailwind that will outlast any short-term fears. It dwarfs the importance of a trade war over the next five years.

The next shift happens tonight after the markets close, when $16 billion will move into Chinese stocks in an instant.

These continued money shifts – which are certain to happen – are why I'm incredibly bullish on China in the coming years. And they're why you want to be on board when the uptrend returns.

Good investing,


P.S. I recently returned from another trip to China... And what I saw this time impressed me as much as any of my recent visits. That's why I've put together an emergency briefing next week to discuss the crucial events taking shape in the Chinese markets right now.

I'll also give away one trade I see setting up for a big potential rally... It's the perfect way to profit from the trade war. You can attend this online briefing for free on Thursday, May 30, at 8 p.m. Eastern time. Just reserve your spot right here.

Further Reading

"Every time I visit China, I am stunned at the progress," Steve says. "It's just relentless." Read more about his recent trip – and why most Americans' perceptions of the country are different from reality – right here.

"The long-term opportunity in Chinese stocks is too good to pass up," Steve writes. Learn more about a recent sentiment shift that makes our MSCI story even better: A Cryptic Headline Says $2 Trillion Could Flow Into Chinese Stocks.

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Market Notes



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