Buy The Foreign Market Profiting From China’s Historic Rally
I spend a lot of time on the road. As far as I’m concerned, to truly grasp the investment opportunities that emerge each year across the globe, there’s no better way than to actually see it in person.
My travels recently took me to Hong Kong, the island protectorate that has been home to the some of the most stunning stock market gains seen in quite some time.
#-ad_banner-#While visiting the area, which has been under Chinese control since 1999, I had a chance to sit down with friends working and investing in Hong Kong — first over tapas and wine on the famed Old Bailey Street in Central district, and then whiskey and Cuban cigars at a friend’s private club.
And what they told me confirmed the data I’ve been seeing on this part of the world: a powerful investment trend is in full swing.
You see, over the past two months, the Hong Kong stock exchange has been on a tear. Beginning March 11, the benchmark Hang Seng index gained 20% to hit a high of around 28,500 in late April.
Since then, the index has pulled back 4%, but it is still up considerably for the year.
Before the index’s surge, it had been mostly moving sideways for nearly a year.
So what happened?
It all has to do with China and critical regulatory changes taking place. Up until now, investors on the mainland have had restricted access to the Hong Kong stock market. Wealthy individual investors were able to buy Hong Kong stocks, but for millions of smaller stock buyers, there was no legal channel available to buy the Hang Seng.
That all changed in March, when the Chinese government implemented a “stock connect” program allowing mainland investors better access to Hong Kong’s markets.
The most drastic aspect of the change officially allows mutual funds on the mainland to buy Hong Kong stocks for the first time, opening the doors to a huge inflow of capital.
This is a big deal. China’s mutual funds hold an estimated $800 billion in investment cash. And lately, these big buyers have seen huge run-ups in valuation for Chinese stocks, driven by frantic buying from mom-and-pop investors. The opening of Hong Kong’s market gives these investors a new arena into which to pour their money.
Frankly, investing in China these days seems awfully dicey. Hong Kong may be the safer bet.
A hoard of cash is flowing from private savings accounts into China’s buzzworthy stocks, which has created a sense that a bubble formed. It took very little time for me to find 10 China-focused stocks that have risen at least 500% in the past 13 weeks.
|Company||13-week price change|
|BEP International Holdings Ltd |
China Properties Investment Holdings Ltd
Jicheng Umbrella Holdings Ltd
China Yunnan Tin Minerals Group Co. Ltd
Ngai Shun Holdings Ltd
Freeman Financial Corp Ltd
Nan Hai Corporation Ltd
Neo Telemedia Limited
China Trends Holdings Limited
Cypress Jade Agricultural Holdings Ltd
| 5,233% |
I also found more than 300 stocks that have risen 50% or greater in that time. With so many stocks posting these kinds of gains in so little time, memories of dot-com stocks in 1999 start to come to mind.
Make no mistake, the China economic miracle has many years to fully play out. While Chinese stocks may stumble and the Chinese economy may slow, over the long haul, great investment gains will be had.
One way for investors interested in China to capitalize is to focus on Hong Kong, which is home to many companies that profit from Chinese economic growth.
Simply put, Hong Kong stocks are a relative bargain. Prior to the recent run-up in Hong Kong’s markets, for example, the average technology stock on the Hang Seng was more than 40% cheaper than mainland counterparts. Blue-chip stocks in Hong Kong were about 30% less expensive.
In fact, that’s why many mainland Chinese investors have been pouring an impressive sum of money into the Hong Kong stock market, thanks to these regulatory changes.
The Chinese government set a quota of 10.5 billion yuan (about $1.69 billion) for trades allowed from the mainland into Hong Kong each day, which has been easily hit in recent months.
Mainland investors are pouring money into Hong Kong stocks as quickly as they can. And when you have $1.69 billion in new dollars surging into a market each day, the results are dramatic — evidenced by the recent run-up in Hong Kong share prices.
The thing is, it appears that this powerful trend may just be getting started. Even with the gains that Hong Kong stocks have seen lately, many of them are still trading well below valuations for mainland companies.
That could create opportunities right here at home. About 200 Hong Kong stocks are cross-listed in the United States, meaning individual investors in the States can get in on the action.
In fact, one of my favorite stocks in this market has become a compelling bargain in recent months (note: I also own it in my premium newsletter, Top 10 Stocks). While some stocks in Hong Kong — and many stocks in mainland China — have soared in value, this stock has actually pulled back a bit.
That lack of appreciation suggests that it could become a target for mainland investors once they begin to move down the food chain, from the blue-chip stocks of Hong Kong to the smaller issuers.
Unfortunately, I don’t have time to tell you more about this company today, but if you follow the instructions below, you’ll have the chance to gain access to an exclusive interview where I discuss Hong Kong and reveal the name and ticker symbol of this firm.
The big takeaway: Hong Kong is a perfect international market for Americans to invest in. And with a wave of potential buying from mainland China lining up, this is the time to take a long look at this part of the world.
Editor’s Note: On Tuesday, June 23, StreetAuthority’s income expert Amy Calistri sits down with Dave Forest for an exclusive interview. In this session, they’ll discuss more about how to benefit from Hong Kong’s expansion into the Chinese market (and reveal Dave’s favorite stock). You’ll also discover a new tech boom bigger than the smartphone, why gold stocks are poised to soar this year and receive top stock picks along the way. There will be two showings: 1 PM and 6 PM EST. Click here to register for this free event — and to receive a complementary report.