Don’t Let Fear Keep You out of This Foreign Market

Take a look at the table below. It shows two investments you can make today.

Based on what you see, which investment would you rather own?

All else being equal, Investment B is the better option.

It’s more than 50% cheaper than Investment A… the dividend yield is 20% higher… and the growth rate is almost twice as fast.

If you read yesterday’s Daily, you may have guessed that Investment A is American stocks (represented by the S&P 500).

But Investment B may surprise you…

It’s China’s stock market.

Now, I hear objections about China all the time:

• They’re communists…

• They don’t have free markets…

• The country is too poor…

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But in the Daily, we don’t follow the crowd. We’re contrarians.

And here’s what the crowd is missing… Chinese stocks are extremely cheap. Plus, they have significant upside.

Now’s the time for investors to be scouring the Middle Kingdom for good deals.

In a moment, I’ll tell you why the objections above no longer apply to China. But first, let me show you the first big sign that China’s market is bullish…

Historic Announcement

Last Tuesday, MSCI made big news by adding Chinese A-shares to its emerging market index. (A-shares trade on mainland Chinese stock exchanges.)

For those who don’t know, MSCI is the largest stock index in the world. An estimated $1.6 trillion in assets tracks its benchmark emerging market index.

Here’s why this is big news…

Each of the previous three years, MSCI had considered—and rejected—Chinese A-shares. The about-face this year suggests MSCI now believes China is becoming safer for foreign investors.

But that’s not the only reason to invest in China. The country is seeing big changes…

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Reasons to Invest in China

China is no longer the closed economy many people think it is. Today, the country is a good investment.

Let me knock down those objections I mentioned above and show you why.

• China is communist.

Yes, but in name only.

Business competition in China is fierce. According to recent estimates, 48% of Chinese businesses fail in the first two years… Those numbers are pretty similar to those in the United States.

That proves the Chinese government doesn’t just prop up bad businesses.

And unlike the U.S., Chinese businesses keep more of their profits. The corporate tax rate is 15%–25%. In the U.S., the corporate tax rate can be as high as 39.1%.

Don’t be deterred by the “communist” label. Sure, politically, China is still run by autocrats. But as the MSCI decision shows, the economy is opening up.

And “communist” China has a lower corporate tax rate than the United States.

• Chinese citizens like free markets.

A 2014 study by the Pew Research Center found that 76% of Chinese citizens thought they were better off in a free market. Only 70% of Americans felt the same.

So who’s really more capitalist?

Just like their American counterparts, the Chinese are embracing the free market and becoming more consumerist.

My colleague, Daily Wealth editor Steve Sjuggerud, has been following the Chinese markets for years. He recently took a trip to Beijing and said it is more advanced than anywhere in the United States:

The highways are in perfect condition… And they’re full of luxury-brand cars—Audi, Mercedes, BMW, and more… You think, “Where do all these rich people come from?”

You pass Cartier, Gucci, Tiffany, and every other high-end store you can imagine on your way to the restaurants at the top. (“Who shops here?” you wonder.)

You walk straight into Din Tai Fung restaurant… and end up having one of the best meals of your life. (Apparently, The New York Times ranked it one of the top 10 restaurants—in the world.)

This new wave of consumerism will translate into more corporate profits. So it’s no wonder Steve sees tremendous upside in China like we do.

• Chinese citizens are becoming wealthier.

China’s population is transitioning from mostly rural to mostly urban. Nearly 1 billion people working on farms will be moving to working-class jobs in cities.

As China urbanizes, wages will rise. And we’re already seeing this happen.

The average yearly wage for Chinese workers in 2005 was about $2,600. By the end of 2016, it was $9,900. That’s up 380% in just 11 years.

We saw a similar pattern in the 1950s when the United States began to urbanize. During that period, the U.S. stock market went up 230%.

As wages go up, we’ll probably see a similar rise in the Chinese stock market.

China Is Ready for Prime Time

MSCI’s decision to add mainland Chinese shares to its benchmark index signals the country is moving in the right direction… And that will send billions in new money into the country’s markets.

But the changes I’ve outlined above will lead to even more economic growth. There’s significant upside if you get in early.

Here’s the bottom line: China’s companies are cheaper—and growing faster—than their American counterparts.

Don’t let the media scare you out of investing in China.

Regards,

Nick Rokke, CFA
Analyst, The Palm Beach Daily

P.S. If you’re a Palm Beach Letter subscriber, stay tuned for the July issue. PBL editor Teeka Tiwari just told me he’s found a safe way for you to buy into China.

Bitcoin Demand Is About to Explode—And So Will Prices

Nick’s Note: After reaching nearly $3,000 per coin earlier this month, bitcoin has recently dropped below $2,400.

In today’s must-see 3-Minute Market Minder (transcript included), Palm Beach Letter editor and resident cryptocurrency expert Teeka “Big T” Tiwari says the pullback has created a unique opportunity for bitcoin buyers.

More than 300 million Indians have smartphones, but many of them don’t have access to banks. Teeka says new laws will make it easier for Indians to use bitcoin-based financial services.

This trend will boost demand for bitcoin. But it’s not priced in yet.

Click the image below to hear why Teeka says this is “wildly bullish” news for bitcoin…

From Claudia R.: Since Nick has taken over the Daily, the tone has become more and more politicized. And that isn’t necessary to make his valuable points.

For example, his Rust Belt Tour observations have been interesting. They would be just as interesting without references to “the mainstream media.” He can talk about specific regulations without blanket statements against overregulation. It’s possible to discuss taxation policy without sounding like all taxes are burdensome to everyone.

Bill Bonner (chairman of Bonner & Partners) may have had an important influence on Nick’s thinking, but quite frankly, I signed on as an Infinity member because I prefer the practical, apolitical, action-oriented approach.

Thanks for your patient listening to my feedback.

Nick’s Reply: Thank you for the note, Claudia. If you think my ideas are similar to Bill’s, I’m going to take that as a huge compliment.

It’s unfortunate we have to follow the government so closely these days. And I admit that I don’t like it much myself. But the truth is the government meddles in all areas of the economy. As investors, we need to follow what’s happening in D.C.

When I talk about regulations hurting the coal industry, I’m just telling you how policies are affecting the market. Increased regulations were hurting the industry. Now that regulations are being rolled back, coal is a good investment. These are facts, not political opinions.

Personally, I don’t care which party is in office. I can’t change anything about it. But I can tell you how to invest based on what politicians do.

When Obamacare was passed in 2010, I told anyone who would listen to me to buy health insurers. It was a no-brainer—they were getting 50 million new customers. How couldn’t they thrive? And they did. Since then, Humana has risen 370% and UnitedHealth Group shot up 453%. They more than tripled the market’s return.

Democrat, Republican… it doesn’t matter. The government will give you moneymaking opportunities. Obama gave us health insurers. Trump will give us coal miners and steelmakers.

How’s that for practical, apolitical, and action-oriented advice?

From Tony L.: Personally, I’m not a fan of the cryptocurrency fad. And although I recognize it’s beneficial to some readers, it would be good also to provide stock selections as well in The Palm Beach Letter. Just my 2 cents.

Nick’s Reply: Hi, Tony. At last check, our PBL portfolio had seven actionable stock picks. And Teeka tells us that we’re seeing average gains of 16.5% in our safe-income portfolio and 122.8% in our tech portfolio. (Our crypto portfolio is up 1,123.3%.) Plus, stay tuned for July’s issue… Teeka and his team will be adding a new stock to play the China trend.

And if that’s not enough stock action for you, you can always check out my Elite 25 portfolio. It contains cheap, high-quality companies that crush the overall market. The list is right here.