How the Coming Changes to China’s Market will Affect the World

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.
china shopping

Chinese Stocks Will Never Be the Same Again

Part of my job as an investment advisor is to review new and prospective client portfolios. I like doing this, since it tells me how investors feel about the markets. One trend I’ve noticed during the past several months is the lack of international stock exposure in most investors’ portfolios.

This situation isn’t too surprising, considering the relative underperformance of international stocks vs. U.S. stocks. The chart here of the Vanguard FTSE All-World ex-US ETF (VEU) shows that global markets have indeed struggled of late. While this international equity fund is well off its lows, VEU does remain below both its 50- and 200-day moving averages.

VEU_111414

Compare this fund with the Vanguard Total Market VIPERs (VTI), an ETF that reflects the entire U.S. equity market. Here we see a big spike in the value of VTI since that mid-October slide. The fund now is well above its 50- and 200-day moving averages and trading right at its all-time high.

VTI_111414

Still, I think that generally, there is a somewhat unhealthy lack of diversification out there among many investors. While you may want to be overweight in U.S. stocks during the current bull phase, I think you also should have some targeted international equity exposure in your portfolio to take advantage of the value proposition in oversold segments and to offer you some relative protection if a rotation out of U.S. stocks occurs.

One area I like right now is China. In fact, that nation’s equity markets are poised to never be the same again, and that’s because on Monday, China will launch what’s called the “Shanghai-Hong Kong Stock Connect” program.

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This program allows retail investors around the world to invest in mainland Chinese equities, also known as China’s A-Shares market. The linking of the Shanghai and Hong Kong exchanges will allow approximately 23.5 billion yuan ($3.8 billion) of daily trading between the two markets, and that will essentially open up the mainland China equity markets to an influx of new foreign money.

ASHR_111414

The bullish tailwind can be seen in ETFs such as the db X-trackers Harvest CSI 300 China A-Shares Fund (ASHR), a fund pegged to stocks in the Shanghai Exchange. In fact, the big spike higher in ASHR is something subscribers to my Successful ETF Investing newsletter have been taking advantage of for some time.

If you’d like to find out how you can invest in this new China equity market, as well as many of the domestic market’s best ETFs, then I invite you to check out Successful ETF Investing today!

Milton Friedman on Immigration

“You cannot simultaneously have free immigration and a welfare state.”

–Milton Friedman

The great Nobel Prize-winning economist was an ardent supporter of freedom and free markets. On the immigration issue, Friedman was all for an open-borders style policy — provided we do away with the welfare state and the myriad benefits that immigrants would be “entitled” to once they arrived. In this quote, Friedman illustrates the problem with government once it gets involved in providing goods and services to citizens. The result is usually a lack of freedom for everyone.

Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow Weekly ETF Report readers, send it to me, along with any comments, questions and suggestions you have about my audio podcast, newsletters, seminars or anything else. Ask Doug.

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In case you missed it, I encourage you to read my e-letter column from last week about the recent election’s potential impact on the market. I also invite you to comment in the space provided below.

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Commodities have continued to trend down since my recommendation to short-sell PowerShares DB Commodity Tracking ETF (DBC) on Oct. 13. With your DBC January $23 put options (DBC150117P00023000) up 55%, sell half of your options here to lock in these solid gains. Nicholas_Vardy+_signature

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