China is doing something that could be a major headwind for stocks

As the Chinese government works toward controlling the country's capital outflows, it could be U.S. stocks that suffer as a result.

Specifically, real estate-related investments in the U.S. could be hurt most, according to Larry McDonald of the Bear Traps Report.

"The government's effort to simultaneously clamp down on capital outflows and property speculation could see new inflows in the Chinese stock market in search of a domestic investment alternative," McDonald wrote in a recent report to clients.

In recent years, China's commercial property outflow has ballooned as individual and institutional investors in the country have looked globally for real estate investment.

The "winner" in the Chinese government's efforts to pull back on capital outflows would be mainland Chinese equities over the next couple of years, McDonald said, as "more investors in China will be forced to keep their money at home."

Furthermore, investment product provider MSCI's decision earlier this year to include mainland Chinese stocks in its benchmark emerging markets index will open up mainland equities, which are still "drastically under-owned globally," McDonald wrote.


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Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

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