USA & China: Mini Super-Tuesday


Sunday, June 18, 2017 // Written by Enzio von Pfeil

This Tuesday will reveal whether Georgia will elect a Democrat congresswoman AND whether the MSCI will embrace  China’s A shares.  Investment implications.


GEORGIA

1.  What is at stake.  At stake is a seat in the US House of Representatives.  The Republicans are represented by Mrs. Handel, 55, who was Georgia’s Secretary of State; meanwhile, the Democrats are represented by a 30-year old Democrat upstart opponent, Jon Ossoff.

2.  Price tags. This is the most expensive Congressional race in US history.  The Republicans have flicked  $4 million at Mrs. Handel’s campaign; however, this is dwarfed by the  $23 million which the Democrats have sunken into  Mr. Ossoff’s fight.

3.  Why so much money?  Here is what we spotted in this week end’s Financial Times (FT): “If ever there was a bellwether for the effect Donald Trump’s presidency is having further down Republican ranks, it is here in Georgia’s sixth district in the affluent and well-educated Atlanta suburbs…”[1] The more local reason that so much money is being splashed by the Democrats is that they really want to win this Congressional seat from the Republicans for the first time since 1976.  Crucially, if the Dems do win, this could be the harbinger of the outcome of next year’s mid-terms.[2]

4.  How to make money off this.  If I am right in assuming that the Dems will win this Congressional seat, then watch the dollar as well as US treasuries as well as the US stock market strengthen in anticipation of a weaker Republican government as of next year’s mid-terms…

 

MSCI

1.  What is at stake. To resort to the same FT, p.13 (I have italicized the key word): Whether “MSCI…approves the inclusion of a cohort of Shanghai- and Shenzhen-listed A-Shares into its main emerging markets index…”

2.  Backgrounder.  Actually, China A-shares as well as bonds already have been included in various MSCI sub-indices.[3] According to said FT: “Currently, investors who track the MSCI Emerging Markets (EM) index already get considerable exposure to Chinese companies listed beyond mainly China, mainly Hong Kong. These types of listings account for 28.1 per cent of the MSCI EM Index and 3.1 per cent of the MSCI All Country World Index.”  Please be cognizant of what Mssrs. Mackenzie and Blitz penned in the FT of 20th June, p. 18: "The list of A-share companies to be included in the benchmark index will be just 169, down from 448 previously. So if A-shares are included, they will account for just 0.5 per cent of the MSCI EM index, and not a hefty 5 per cent under MSCI's previous proposal."

3.  What’s the big deal? The big deal is “graduation”: instead of China merely belonging to MSCI sub-indices, it is very likely that come Tuesday, Chinese shares become part of MSCI’s  main emerging markets index. This will “…confer an unprecedented recognition upon China’s domestic capital markets and (thus: your author) oblige funds all over the world to pour billions (of dollars: your author) into the country’s (domestic: your author) stocks.” Thus, Caroline Owen, Chief Executive of New York–based advisory firm, RMB Capital, states that “We are on the verge of one of the greatest re-balancings of global portfolios that we have seen in recent years.”

4.  How to make money off this. Buy China as a short-term trade.[4]  ”Vanguard…offers a successful emerging market exchange-traded fund which follows a China A-share sub-index provided by FTSE, a competitor to MSCI.  Alternately, increase your H-share exposure….Go long the RMB on account of lots of inflows into A-shares and the like.



[1] The district at stake has been represented by previous beacons such as Sen. Johnny Isakson and former House Speaker Newt Gingrich.

[2] See my previous blogs of 7th  as well as 1st of June as to how a worsening  US Economic Time® will help the Dems win in the coming mid-terms…

[3] As opposed to its main index, which is what this momentous event is all about.  See our previous paragraph.

[4] Just recently we warned investors of China’s worsening Economic Time® in section one of my speech

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