Will Broken China Cause Your Portfolio to Leak?

If you were watching the news last week, you no doubt saw that both the Dow and the S&P posted their worst five-day starts ever. Both ended the week down by approximately six percent. The cause? Slowing economic growth in China, and rising fears that the Chinese economy could be in for a hard landing. Since the start of 2016, the Chinese securities regulator has halted trading, suspended its own “circuit breakers,” and implemented other measures to control volatility, resulting in massive global sell-offs. And that has contributed to a bit of a panic among some investors in the U.S.

Should you be worried? No. As I wrote in my blog a couple of weeks ago, market uncertainty is pretty much a fact of life. If you focus on the things you can control, and stay the course, you’re likely to do better in the long run.

What’s happening in China is not totally unexpected. Chinese leaders have been focused on changing the drivers of economic growth in a controlled way, and implementing reforms that would shift away from engines like infrastructure creation, in favor of powering the economy through consumer spending. However, the Chinese economy is slowing at a faster rate than expected, and the government’s efforts to interfere with the markets seem to be triggering investor anxiety.

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A couple of things to note: Most U.S. investors aren’t heavily invested in China, but the global interconnectedness of the markets can cause an immediate reaction – or overreaction – to bad news. At AMDG Financial, our emerging markets portfolio for most clients is less than four percent of their entire portfolio balance. Further, most emerging-market countries in this portfolio include only those with established democracies and court systems that protect property rights. (Exceptions include small amounts of market holdings in China and Russia.)

Also, this could get worse before it gets better. Until the Chinese market finds its own level, we can expect the uncertainty to continue. That means investors should be selective in where they invest, and mindful that a hard landing is very much a possibility.

Beyond that, sit tight, remember your goals, and turn off the news. While it’s tempting to keep checking your portfolio balance, remember that this, too, shall pass. This is not the financial crisis of 2008; it’s a market correction that could present buying opportunities in the coming days and weeks. (Rebalancing your portfolio provides an opportunity to purchase asset classes that are lower in value, proportionate to other asset classes.)

In short, stay focused and stay calm. This is what the markets do.

If you have questions or concerns about your portfolio, please feel free to call us at 734.737.0866. We’d love to chat with you!

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