‘China-proof’ investment portfolios

27 Jul

Investors must ‘China-proof’ their portfolios following China’s stocks plunging today the most since 2007.  At close of business on Monday, the Shanghai Composite Index had dropped 8.5 per cent.

As I was quoted today in Dow Jones’ Market Watch and The Express, amongst others, this decline highlights that the Chinese authorities may be reducing capital inflows after their frantic actions to support the stock market earlier this month.
However, as we predicted, such measures are not sustainable long-term, the market is weak without the support of the government and investors are unclear of the situation.

As these circumstances in China continue to evolve, it is highly likely that they will cause increasing volatility in the financial markets over the next year.  Hence investors should ensure that their portfolios are ‘China-proofed’ in order to properly manage risk and take advantage of inevitable buying opportunities that will come along.

The best way of doing this, as always, is to make sure that portfolios are sufficiently diversified across regions, assets and industries, and by consulting a qualified fund manager who will be able to benefit from such opportunities and obtain the best stocks at the optimum time for clients.

Nevertheless, even though this slowdown in China could perhaps be the cause of major geopolitical turmoil over the next few months, I am somewhat confident that the Chinese authorities will utilise everything at their disposal to make sure there isn’t a hard landing.

As it stands, the economy is maturing and there is most definitely a considered move away from commodity-hungry spending on infrastructure.  However it is my view that the Chinese government must take far more action to encourage domestic consumption in order to prevent the slowdown from gaining a firmer grip on the economy.

Consequently, the predicted volatility in financial markets due to China rebalancing its economy will indeed bring both opportunities and challenges for investors, so it is imperative that they consider this when devising and reviewing their investment portfolios.

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