China – Does It Really Matter?

Share:

The reaction to the possibility of slowdown in the Chinese economy was an excuse for a correction.  This correction has caught many with their pants down, due to the euphoria of the cyclical bull market.

China – Does It Really Matter

The market has risen dramatically without looking back, ignoring every possible piece of negative domestic news (e.g. lower home sales, bankruptcies of subprime lenders).  The reaction to the possibility of slowdown in the Chinese economy was an excuse for a correction.  This correction has caught many with their pants down, due to the euphoria of the cyclical bull market. Most portfolios have been assembled for ‘return’, while paying little attention to risk.    

Let’s get the facts straight.  We don’t know if the Chinese economy will actually slow down, but even if it does, despite its populace, it’s GDP is still smaller (or close) than France.  I don’t remember seeing a selloff in the US markets because the some incident in the French economy.  A slowdown in the Chinese economy would have a significant impact on commodities and companies that produce them, as Chinese  demand was the recent driver of commodity prices.  However, a market selloff was telling investors that ‘as goes China, goes the U.S.’  – that is not the case. The inverse is more likely to be true.  That was not why the market was down.  Slower growth of the Chinese economy or even a dramatic slowdown is likely to shave off small bits of our domestic GDP growth – we sell a lot less to them, than they sell to us.  In fact, the Japanese economy, which is three times the size of the Chinese economy, was in a dramatic recession for the past 15 years. However the US economy enjoyed some its best years of prosperity, during this period.    

Investors should check their portfolio for exposure to the health of the Chinese economy, but that is something they should do regularly anyway.  They should look at how much of their companies’ sales come from China. You don’t want to have a portfolio full of companies that sell only to the Chinese.  Also make sure that you don’t have a portfolio full of commodity stocks, as they’ll be on the frontlines of the casualty list if the Chinese economy weakens dramatically.  This drop in the market has created buying opportunities.  Many U.S. companies that declined in price are not greatly impacted by what happens in China, or even by a slower growth rate of our economy. 

Please read the following important disclosure here.

Related Articles

Q&A Series: Money Habits for Kids and the Power of Writing

Q&A Series: Money Habits for Kids and the Power of Writing

In this Q&A excerpt, we'll explore teaching money habits to young people and how writing has improved my investment approach.
The Impact of Higher Interest Rates on the Economy - AI Edition

The Impact of Higher Interest Rates on the Economy – AI Edition

I asked AI to educate and entertain my readers with a radio show-style dialogue based on my essay - The Impact of Higher Interest Rates on the Economy.
Navigating Market Cycles From Bulls to Nvidia – AI Edition

Navigating Market Cycles: From Bulls to Nvidia – AI Edition

I asked AI to transform my essays into a radio show-style conversation. In this episode, topic is stock market math, sideways markets, the role of P/E in market cycles, impact of interest rates on P/E, economic analysis, Magnificent Seven stocks, NVIDIA, and a lot more.
Managing a Million What Would I Do Differently

Managing a Million: What Would I Do Differently?

Warren Buffett has stated multiple times that if he could manage a very small amount of money today, he would be able to return more than 50% per year to shareholders. If you managed a million dollars of only your own money, would you do it differently? 

Leave a Comment