In last week’s issue, I wrote about the pending tailwind in China’s A-shares market, as the world awaited the decision by MSCI on whether they were going to include China A-shares in their emerging market index.
MSCI Inc., whose MSCI Emerging Markets Index is the most widely tracked benchmark of share-price performance outside the developed world, said it would add China A-shares to the index — just not quite yet.
The deferral to begin adding A-shares later this year disappointed some China bulls, but it shouldn’t have. In fact, knowing that mainland Chinese stocks will become part of the MSCI Emerging Markets Index ETF (EEM) just means more time to get long A-shares before all of the index-based advisors out there are forced to flood into the market.
Remember, once MSCI adds A-shares to the EEM Index, it would effectively force fund managers around the world to begin buying A-shares in an effort to mirror the revised holdings.
A move to add the A-shares would undoubtedly cause the value of stocks in ASHR to extend their winning ways, as this will be an extremely bullish tailwind for the segment.
Meanwhile, here at home, stocks have a volatile week, with big gains on Wednesday and a big decline on Friday. That action resulted in basically a net flat market this week, as traders prepare themselves for any surprises by the Federal Reserve at its upcoming FOMC meeting.
The benchmark S&P 500 SPDRs (SPY) ETF has been locked in a tight trading range for the past four months, and though there has been some small move to the upside, there hasn’t been a material breakout since last October.
Still, the key here is the 200-day moving average, which remains trending higher. Unless stocks were to fall below $203.72 (the 200-day average), we can still keep calling this bull a bull.
Finally, the one area we have seen some sharp movement in of late is Treasury bonds.
Bond prices have fallen and bond yields have climbed in anticipation of the Fed pulling the trigger on its first rate hike in nearly seven years.
Bond prices now are well below both the 50- and 200-day moving averages, and while I would call this a bear market in bonds, the trend since April has been distinctly lower.
So, what do you do about rising China A-shares prices, flat-lining domestic stocks and a drop in bond prices?
Simple, you read my Successful ETF Investing newsletter.
We are currently profiting mightily from allocations to China, and we continue to help subscribers add domestic stocks at the right price, as well as add the right kinds of income-generating assets that will hold up as bond prices fall.
To find out more about China, domestic stocks and bond investing, check out Successful ETF Investing today!