3 reasons why China may soon boost the ASX

There’s a good chance that China may soon boost the ASX for three different reasons.

It’s been hard not to notice that Australia is quite dependent on China’s economic strength for our own economy to prosper. A trade war between two of Australia’s largest trading partners isn’t a positive thing for the ASX.

However, there are three Chinese-related things that may soon boost the ASX:

Trade deal

The trade skirmish between China and the US has been going on for a few months now, but it may be coming to an end.

International media are reporting that US and China could be making a progress in their 90-day ceasefire with neither country wanting to escalate the situation. The negotiation teams have extended talks that are trying to end the trade disputes.

If a trade deal can be agreed then I can imagine you would see a widespread recovery on ASX, US and Asian shares. Local favourites like A2 Milk Company Ltd (ASX: A2M), Blackmores Limited (ASX: BKL) and Bellamy’s Australia Ltd (ASX: BAL) could all receive a boost.

China may buy Chinese shares

Bloomberg has reported that the People’s Bank of China could start buying Chinese shares this year to encourage discretionary spending, according to Jim McCafferty from Nomura Holdings.

If this were to occur it could give Chinese investors a ‘wealth effect’ boost and cause the Chinese economy to get back to previous growth levels.

That spending could easily mean more demand for BHP Group Ltd (ASX: BHP) commodities and many other Chinese-linked ASX shares.

MSCI Inclusion

Another factor that could accelerate the wealth effect for the Chinese share market and Chinese investors is that MSCI Inc is considering increasing the weighting of Chinese shares in the global indexes this year.

We have seen what happens when a share enters the ASX200, there is greater buying demand which boosts the price.

The Vanguard MSCI Index International Shares ETF (ASX: VGS) could be one of the bigger buyers of Chinese shares later this year.

Foolish takeaway

Whilst I wouldn’t pin all your hopes on any (or all) of the above coming true, it shows there are several reasons to perhaps be positive about the Chinese share market in 2019 and how that may indirectly boost the ASX.

However, I wouldn’t exactly call the share price of a2 Milk cheap at the moment, there may be better shares out there for growth.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Blackmores Limited. The Motley Fool Australia owns shares of A2 Milk. The Motley Fool Australia has recommended Vanguard MSCI Index International Shares ETF. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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