Bet On Surging China Stocks With These Leveraged ETFs

Chinese stocks have been skyrocketing this year, rising to a nine-month high. Logging in the biggest monthly gain since April 2015 in February, the Shanghai Composite Index reclaimed its above 3,000 level on Mar 4 for the first time since June 2018. With the current rally, the index is up about 23% since its Jan 3 low and added nearly $1.5 trillion in value to China’s stock market.

Below, we have highlighted some reasons for the outperformance that will likely continue in the near term.

Potential Trade Deal

The optimism over the trade deal with the United States has been the biggest catalyst behind the rally. Washington and Beijing are close to striking a deal as early as this month to end the nearly one-year tariff war. According to the Bloomberg News and The Wall Street Journal, China offered to ease tariffs and other restrictions on U.S. farm, chemical, auto, and other products. Meanwhile, Washington is considering removing most, if not all, sanctions on Chinese imports placed last year.

MSCI Inclusion of Chinese Stocks

The MSCI move has instilled further confidence in Chinese stocks. The global index provider will quadruple the weighting of Chinese mainland shares (A-shares) from the current 5% to 20% for a number of its indexes, most notably the MSCI Emerging Markets Index in three phases — 10% in May, 15% in August and 20% in November. MSCI added 236 China-listed large-cap stocks to its Emerging Markets Index in 2018. Notably, Chinese A-shares were included in the MSCI Emerging Markets Index for the first time last year.

MSCI will also add 168 new mid-cap stocks in November and include 27 shares listed on the tech-heavy ChiNext board for the first time. On completion of the full implementation, the weighting of Chinese stocks in the MSCI Emerging Market Index will jump to 3.3% from the current 0.7 as the index will include 253 large-cap and 168 mid-cap China A-shares.

The move will likely trigger more than $80 billion of fresh foreign inflows into the world's second-biggest economy, per the index provider.

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