President Trump made a bold campaign promise to drastically cut the trade deficit with China and has been on an urgent do-or-die mission since taking office. Unfortunately, the Chinese trade deficit achieved an all-time record last year of nearly $420 billion, trade tariffs have been successfully countered by China, and President Jinping continues to display a patient demeanor, indicating that he has no problem continuing a tit-for-tat tariff war, until the 2020 U.S. election when he will learn that he has a new U.S. representative to deal with or must come to terms with Trump. But what appears to be getting lost in this shuffle is the fact that China is no longer a manufacturing-led economy. China is the largest e-commerce market in the world, worth $1.3 trillion and will soon claim the largest retail market as well.
Earlier this year, a Bloomberg headline read, “China A-Shares Will Be One-Tenth Foreign-Owned in Ten Years: MS.” The first bullet point on the report being sited said, “Morgan Stanley sees foreign ownership of China A-shares reaching about 10% in 10 years from the current 2.6%, with annual A-share inflows normalizing at around $100bn-$220bn.” Trade is an important factor, but China’s consumer-driven economy is methodically transforming China’s stock market into one of the world’s greatest potential wealth-creation vehicles. A devaluing currency and falling prices scared investors out of the market. But lower prices, a growing economy, and growing Chinese confidence have their stock market poised for a potential boom second to none. Chinese consumer confidence has been increasing almost non-stop since March of 2016 when Beijing announced the pension fund investment program. And Morgan Stanley Capital International Inc.’s (MSCI) inclusion of Chinese-traded stocks in its global indexes made the world aware of the growing opportunity.
MSCI is an investment research firm that provides benchmark indices, portfolio risk, performance analytics, and governance tools to institutional investors and hedge funds. In 1969, the Capital International (CI) indices were the first global stock market indices to include companies outside U.S. markets. Morgan Stanley (MS) bought the licensing rights to CI’s data in 1986, forming the acronym MSCI, and Morgan Stanley became MSCI’s largest shareholder. After being acquired by Barra in 2004, MSCI was spun off in the form of an NYSE IPO in 2007 and became a fully independent, stand-alone public company in 2009. It was and remains a critical indicator, where stocks with the largest market capitalization achieve the highest weighting on the index.
Chinese STAR Market IPO’s are reporting excess demand insuring that tens of billions of investable dollars are waiting to flow into Chinese stocks. The U.S. stock market is sure to see continued pressure and a floundering Fed continuously fails to instill confidence in the stock market, dollar, or economy. Overall, it’s a scenario that strongly supports investment in physical precious metals, particularly since the stock market is struggling, bonds are floundering, and precious metals have received new attention due to the ongoing failure of other traditional investment instruments.
Although the information in this commentary has been obtained from sources believed to be reliable, American Bullion does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice. American Bullion will not be liable for any errors or omissions in this information nor for the availability of this information. All content provided on this blog is for informational purposes only and should not be used to make buy or sell decisions for any type of precious metals.