Playing the Rise of the Chinese Stock Market

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In the first week of December, Chinese stocks experienced their biggest jump in almost six years — up 9.5 percent. Additionally, daily trading broke through the 1 trillion yuan mark for the first time as more and more domestic Chinese investors began rushing to open trading accounts at a rate not seen in recent years.
Despite the recent global perceptions of economic weakness in the region, the Shanghai stock index just continues to soar higher.

Shares really caught fire when top global investment guru at Franklin Templeton Investments, Mark Mobius, chimed in stating that he believed that the bull market in Chinese stocks was just getting started.

You may recall just five weeks ago, on our November 11 broadcast, I told you that I would be adding significant exposure to Chinese stocks in my own portfolio. The title of the broadcast was appropriately entitled: It’s Time to Buy China. At that same time, I also informed all of our paid subscribers of the ETF that I would be using to gain access to China.

Over the past five weeks, many of our subscribers have enjoyed the 27% increase in that China ETF, and I believe that we are still in the early stages of this new Chinese bull market.

In a recent report, Morgan Stanley sees a few possibilities for the Shanghai Composite as follows:

A return to the historical P/E of 21.8, giving the market 70% upside from here.
An increase to the historical peak P/E multiple of 71.4, giving the market 453% upside from here.
An increase to the same P/E multiple as the S&P 500’s 18.4, a 42% increase from here.
The current P/E multiple as India’s Nifty index, which is trading at 21.8, the Shanghai’s historical average. So, 70% upside.
The boom in Chinese stocks comes after a boom/crash of Chinese real estate. They are simply fueling a new stock market bubble that will end badly, but will make a lot of people much richer along the way.

However, if Chinese economic figures continue to deteriorate, investors will likely expect China’s central bank to lower reserve-requirements and cut interest rates.

Trading country-based ETFs has long been one of my favorite ways to profit from the markets.

There are two other country ETFs that I have been watching lately, in addition to China.

I think that one of these ETFs could return upwards of 100% in less than 24 months while the other could provide 40%-60% returns during that same time period.

I will be adding shares of these two ETFs as soon as we receive a buy signal.

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