Though we’re barely past halfway through the year, the stock market in US is much calmer compared to 2020. Despite some resistance for the vacinnation, the economy has gradully reopened, and unemployement rate have dropped. The stock market has been upbeat, with S&P 500 having six monthly gain in a row. A detailed report from Ryan Detrick, LPL Chief Market Strategist is available to read in a separate email.
On the other side of the world, a speedy crackdown at a spate of big companies is on the stage. Chinese government went after Ant, Tencent, Didi and education companies one by one, and there is no end in the near sight. The kung fu combination sent MSCI China index to -12.19% YTD as of July 20, 2021, compared with a 17.02% rise in S&P 500 index.
Emerging countries experience a high growth rate due to utilization of labor and capital and increased productivity. Investing emerging market is nonetheless risky with unstable financial system and volatile political environment. Although events in emerging markets haven’t escalated to a wide crisis across the world recently, several such cases occurred in the later years of the 1900s.
China is heavily represented in emerging market ETF. But for those actively management funds, we see a spate of asset managers have cut Chinese companies’ positions recently, foreseeing that the country may tighten state control to align the behavior of private companies with state priorities, which are to tackle the imminent problems of lower growth and to avoid a middle-income trap. The market is worried about the adverse effect of the sudden large-scale measures taken by the Chinese government. The measures manifest the state power over individuals’, and to many people’s belief, will undermine the foundation of market economy. However, it’s too soon to say that Chinese economy is doomed. For the past forty years, the miracle of Chinese economy is based on a very practical and empirical value system. The goal of both the government and the individual has been to reinvigorate and modernize the country and improve standard of living condition for everyone.
As the new decade unfolds, competition between US and China is inevitable. The prospect of the new episode underlies the direction of international capital flow. In 2020 China’s resilience to the coronavirus has attracted international investors with a 62% increase in overseas holdings of local stocks from a year earlier, and a 47% fillip for the bond market. This year the United States has been leading the economy recovery among major economies from the pandemic, while there is an uncertainty how further the Chinese government will tighten its rules against private companies. In addition, China’s central bank has recently lowered its reserve interest rate. In contrast to last year, we already saw a slowdown of international capital flowing into China.
Diversification across countries with less correlations reduce overall portfolio risk. We need to heed to the evolution of different societies. As Bertrand Russell put forward in A History of Western Philosophy, the essence of liberalism is an attempt to secure a social order not based on irrational dogma, and insuring stability without involving more restraints than are necessary for the preservation of the community.
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The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The MSCI China Index captures large and mid cap representation across China A shares, H shares, B shares, Red chips, P chips and foreign listings (e.g. ADRs). With 730 constituents, the index covers about 85% of this China equity universe.
S&P 500 and MSCI China Index are unmanaged indices which cannot be invested into directly. Past performance is no guarantee of future results.
This information contained in this article has been designed for general informational and educational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any security. Such offers can only be made where lawful under applicable law. These materials have been obtained and derived based on information from public and private sources that Pearl Wealth Management LLC believes to be reliable. However, no representation, warranty or undertaking, stated or implied, is given as to the accuracy or completeness of the information contained herein, and Pearl Wealth Management expressly disclaims any liability for the accuracy and completeness of this information. Pearl Wealth Management does not intend to provide investment advice through these materials and does not represent that any market position, economic forecast, securities or services are suitable for any investor. Investors are advised not to rely on these materials in the process of making a fully informed investment decision and they do not render business, tax or legal advice. Each client or prospective client should consult his/her own attorney, business advisor and tax advisor as to legal, business, tax and related matters concerning the information contained herein. The information, opinions and views contained herein have not been tailored to the investment objectives of any one individual, are current only as of the date noted and may be subject to change at any time without prior notice. Past performance does not guarantee future results. All investing involves risk of loss including the possible loss of principal.