Is China Relevant to Your Portfolio | News or Noise

China’s economy, led by the policies dictated by its general secretary, Xi Jinping, has struggled during the first half of 2022 under the backdrop of his “Zero Covid” mandate in front of the upcoming election. China’s political and economic uncertainty comes as Xi prepares to extend his presidency to a third term. In 2018, Chinese lawmakers removed the two-term limit, clearing the way for Xi to become its most powerful ruler since Mao Zedong.

I’m Chris Perras, Chief Investment Officer with Oak Harvest Financial Group. And This is our investment team’s mid-week release when we examine a news item, headline, or story making the rounds from publicly available sources, and ask, “Is it News or Noise?” for your money. This week we take on the topic of China and its relevance to your money. I’m calling this China, short-term economic weakness, and long-term military strength.

Persistent waves of Covid have upended Xi’s zero-tolerance approach. It’s resulted in waves of citizen lockdowns throughout the country over the last 18 months. Shanghai is home to 25 million residents that have been confined to their homes for over a month. These lockdowns have derailed manufacturing and consumer spending internally while lowering the global economic recovery externally. This slowdown has shaken confidence and slowed the growth of American foreign businesses such as Nike, Boeing, and Starbucks, who have long courted opportunities inside China. While bad here at home, it has been even worse economically for Europe as China accounts for a much more significant percentage of their GDP due to manufacturing and auto exports into China.

At the same time, China’s zero covid policy and crack down on large public technology companies since the first quarter of 2021 has slowed growth, thrown supply chains into disarray, and led to increased costs and inflation throughout the rest of the world. This is of course is news for your money as both revenue and costs of many American based publicly traded companies are affected by the world’s second-largest economy. Remember, China, for the last 30 years, has accounted for an oversized portion of global growth.

Optimistically, post-China’s fall elections, Xi will have an incentive to step back from his zero Covid policy and once again focus on economic growth. In addition to a Covid-induced slowdown, China’s economy and its banks have been struggling under the weight of massive housing and construction overbuilding for 20+ years.

Longer term, say over the next 1 to 3 years, to me, the biggest issue facing China and the rest of the world is their desire and intent on flexing their military power to regain control of Taiwan. This, too, is news for your money and bears watching with great interest. Why? Because as we’ve pointed out during previous segments, Taiwan and, more specifically, the Taiwan Semiconductor industry accounts for over 50% of all global semiconductor chip manufacturing. Semiconductors are now the building blocks and brains for all those devices we now rely on to 1- make us more productive at work, 2- communicate with others, and 3- entertain ourselves. So, like it or not, after worrying about the Federal Reserve making a monetary mistake, what do I worry about the most over the medium term? China, the second largest economy in the world.

At Oak harvest, we think our clients are best served by us helping them plan for their future needs, instead of focusing on the past. The future is always uncertain and that’s why our advisors and retirement planning teams, plan for your retirement needs first, and your greed’s second.

Give us a call to speak to an advisor and let us help you craft a financial plan that helps you meet your retirement goals. Call us here at (877) 896-0040, and schedule an advisor consultation. We are here to help you on your financial journey into and through your retirement years.

I’m Chris Perras and from everyone here at Oak Harvest Have a blessed week.