There’s a tectonic shift coming for the Chinese stock market.
It’s nearly guaranteed to happen this year. And the ramifications are far-reaching…
As longtime DailyWealth readers know, I’ve been covering the opportunity in China for years. I’ve visited the country at least once a year since 2016.
But what’s happening right now could be the biggest China story I’ve covered yet.
Let me explain…
If you’ve followed my work in China, you know the theme of “wrongs that need to be righted” has been a major driver…
That’s because when an imbalance exists, we know it will eventually be corrected… And as investors, we know we can often make huge gains as the situation shifts.
Many of the China-themed fixes I’ve outlined in the past are underway now… like global index provider MSCI’s ongoing inclusion of Chinese “A-shares” in its indexes.
Thanks to this change, A-shares – stocks trading locally on the Chinese mainland – are part of these global benchmarks for the first time ever. And that means up to $1 trillion will flow into Chinese stocks over the long term. But the MSCI story is just the start.
China still has plenty of problems to solve. One of them will be taken care of next year…
You see, China is launching its own Nasdaq-like stock exchange. It announced the plans in December.
This is HUGE news. This change will allow hundreds, potentially even thousands, of China’s fast-growing tech companies to go public for the first time… something that hasn’t been possible before.
That’s because right now, unprofitable companies are banned from China’s stock market. They can’t go public.
It sounds strange to folks in the U.S. But it wasn’t always possible here, either.
For decades and decades, companies couldn’t list in the U.S. without showing years of profits. That system seemed logical. It seemed like a way to protect investors.
No one wanted to mess with businesses that weren’t viable and making money. So the exchanges didn’t let them list. Companies would go public after proving themselves with years of profits.
This was the model in the U.S. for decades. But it changed in the mid-1990s, with the public offering of a single business – Netscape.
Netscape was one of the first Internet browsers. More than that, it became the face of the Internet – and the face of the Internet boom.
Investors wanted in on the company. They didn’t care that it had only been in business for 16 months… and had no profits at all.
Shares were offered to the public on August 9, 1995. The stock was an immediate hit. In fact, the offer price doubled from $14 to $28 just before trading began.
The stock reached a peak near $75 on the first day of trading. It closed its first day at $58.25… up more than 300% from the initial offer price.
Those gains caught the attention of even more investors. The brand-spanking-new company received a valuation of $2.9 billion. Not bad for a business that had never turned a profit.
All this was possible because Netscape listed on the then “second rate” Nasdaq stock exchange. The Nasdaq had lower listing requirements than the New York Stock Exchange. That allowed Netscape to go public despite a lack of profits.
This changed the nature of investing and doing business in the U.S. But it hasn’t happened in China… yet.
That’s about to change. The big plan is for China to launch its own “Chinese Nasdaq” this year in Shanghai.
Insiders are placing the launch as early as June, with reviews of IPO applicants starting as early as March. We don’t have many details just yet. But we should see rules for the new exchange in the next few weeks.
That alone is big news. But what it means for us, as investors, is even bigger. In tomorrow’s DailyWealth essay, I’ll explain why this could lead to absolutely spectacular gains.
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Source: Daily Wealth