Many of you have probably heard the old Wall Street expression "sell in May and go away," which refers to traders who sell their positions and go on vacation for the summer. Well, that saying is certainly not true in China! The markets there have been blistering hot, and even though the year is not quite half finished, stocks there are up an impressive 50% year-to-date.
To slow the scorching Chinese markets, the government in Beijing recently began an important initiative. On Friday, May 11, China made a big announcement: Chinese banks can start investing in foreign stocks. This is huge news because up until recently, banks had only been allowed to invest in the domestic markets in Shanghai and Shenzhen.
The new ruling is called the Qualified Domestic Institutional Investors Program, or QDII for short. Basically, the QDII lets Chinese banks set up new professionally managed funds containing foreign-listed stocks. This marks the first time ever that Chinese investors will be allowed to purchase overseas stocks through bank-managed mutual funds.
Since the QDII only affects Hong Kong-listed companies right now, the impact of the program is more symbolic than substantial. But this is an important first step for China -- it finally gives its citizens access to foreign stock investments. I expect this trend of financial freedom to continue, and for high-quality U.S.-listed Chinese companies will benefit in the months ahead.
This is a topic I expect to talk a lot about as new developments arise and specific investment opportunities make themselves available.