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Big catalyst could send this market up 30%


While stocks around the globe were getting taken to woodshed last week, one country’s equity market actually provided investors with a nice boost to portfolios.

In China, Shanghai’s Composite index shot up an astonishing 3.7% while investors were seeking cover back stateside. In fact, shares in China have actually been outperforming since July, as exogenous factors like geopolitical risks riled investors, as well as Fed monetary policy statements (coupled with improving economic data) raised alarm about the possibility of rising rates.

Josh Brown, CEO of Ritholtz Wealth Management, isn’t surprised at all. In fact, he believes Asia will be this year’s Europe for investors.

“Most of the reason why [Europe] worked [last year] was the world was underweight, I think coming into this summer we have a very similar setup in Asia, the stocks are already starting to work.”

Brown isn’t talking about small markets like Vietnam, he’s referring to large ones. “Hong Kong has already taken off… Shanghai [is] starting to take off itself.”

The ‘Through Train’

One massive catalyst that Brown sees boosting Chinese stocks is something called the “through train.” The through train setup would all allow investors on China’s mainland and Hong Kong to trade shares in each other's markets, which have been limited thus far with trading quotas on both sides. The big factor here is the exposure to China, which would mean “greater access to the mainland's equities for overseas investors as they could invest much easily in the A-share market through Hong Kong,” reports China Daily.

In Brown’s mind the influx of foreign money into China’s stock market could boost share prices from anywhere from 15 to 30%. With that catalyst coming, Brown recommends investors get in on Asia, and specifically China, using ETFs. Brown’s two favorite picks here are:

  • iShares China Large-Cap (FXI) – made up of the 25 largest Chinese companies based in Hong Kong that trade on the London stock exchange.

  • KraneShares CSI China Internet ETF (KWEB) – the companies in this ETF are ADRs trading on U.S. exchanges that are all Chinese technology companies

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