The Impact of China
Written by: Ryan Bouchey
The two leading sources of the markets bad fortunes of late are the Federal Reserve and China. We’ve discussed in great detail our perspective regarding the Fed – essentially that uncertainty is rattling the markets and when the Fed does decide to raise rates it should help the stock market. We haven’t spent as much time discussing China, but let’s quickly touch upon some reasons why the fear of a Chinese meltdown is a little overblown and shouldn’t affect the U.S. stock market to the extent that it has.
The slowdown in China should certainly raise concerns, but not to the extent of causing a correction in our own markets. When you think back to China devaluing their currency, yes it was a sign that their economy wasn’t growing as they had hoped and the government was looking for a way to boost output, but it must also be discussed that this isn’t a death sentence to U.S. manufacturing and output. The Chinese Yuan started off devalued by only a few percentage points and it caused massive losses to the U.S. stock market. Over that same time frame, the Japanese yen was down over 17% and the Euro was down over 16% – two countries/regions that are larger trading partners. At the end of the day the devaluation of the Chinese yuan shouldn’t be of major concern.
It’s not a great thing to see the slowdown in the Chinese economy, however their slow economy is still growing at a rate of 4-6% per year, well above our average of 2% since the great recession. A couple of things to keep in mind regarding China’s GDP. For one, exports of U.S. goods to China represent 0.7% of our GDP. A slowdown in China will do very little to affect the U.S. economy. Secondly, the slowdown in China can partially be attributed to a maturing consumer-driven economy, which long-term may strengthen their overall economy. In the past, their growth was attributed to industrial output and an economy driven by exports. Now it’s relying more on consumption-led growth which is a good thing and indicates a more developed economy. This type of economic growth will never be able to maintain the double digit growth we were used to seeing in China and that’s okay.
As stated above, there is certainly reason for concern with the recent news from China. But there is a big difference between being concerned and overreacting and thus far the markets seem to be overreacting. We live in an ever shrinking world due to advances in technology, but keep in mind when you hear any further negative news out of China just what it really means to U.S. companies and their stock value. More times than not, it shouldn’t be a huge concern.
IMPORTANT DISCLOSURE INFORMATION
Please remember that past performance is no guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Bouchey Financial Group, Ltd. [“Bouchey Financial”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, no portion of this discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Bouchey Financial. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Neither Bouchey Financial’s investment adviser registration status, nor any amount of prior experience or success, should be construed that a certain level of results or satisfaction will be achieved if Bouchey Financial is engaged, or continues to be engaged, to provide investment advisory services. Bouchey Financial is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Bouchey Financial’s current written disclosure Brochure and Form CRS discussing our advisory services and fees is available for review upon request or at www.bouchey.com. Please Note: Bouchey Financial does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Bouchey Financial’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please Remember: If you are a Bouchey Financial client, please contact Bouchey Financial, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.