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When the Chinese Market Implodes What Happens to Your Investments

As US investors consider the odds of a stock market correction investors in China are already selling stocks. The Financial Times reports on a fresh China stock selloff.

Chinese stocks were back under pressure, as concern about a government crackdown on leverage levels continue to unnerve investors, leaving sentiment fragile.

The CSI300, a composite of stocks listed in Shenzhen and Shanghai, fell 1.3 per cent to a near-three-week low after notching its biggest one-day fall in 17 months on Thursday amid concerns over rising corporate bond yields. Since the start of trade then, it is down by over 4 per cent, trimming its year-to-date advance to 22 per cent.

The decades-long Chinese economic expansion was based on borrowing to build manufacturing and export capacity and has left the China with a huge amount of private and public debt. The situation in China is reminiscent of that in Japan in the late 1980s when their economy seems all set to take over the world and then hidden debts stifled growth and sent them into a quarter century of deflation. Thus the Chinese economy may be in for a reset or may implode leaving things in shambles for years if not decades. Our concern is when the Chinese market implodes what happens to your investments?

Are You Invested in China?

A lot of foreign direct investment has gone into China. Likewise if you own some is it time to sell Chinese stocks as we asked a couple of years ago. The point is that if you own Chinese stocks directly or as ADRs and have seen them go up over the years it may be time to take a little profit before the sheer weight of debt and heavy handed regulation causes their economy and markets to implode.

How Will a Chinese Crash Affect Your Investments Back Home?

In the early days of the Great Recession it was Chinese borrowing, investing and purchasing that helped the global economy get back on track. Buying German machines, paying for Japanese management and buying raw materials from the whole world helped the global economy when it was most in need. And if China implodes it will buy fewer raw materials and fewer German machines and pay less for Japanese management. That will cause a ripple effect throughout the global economy. Everyone who buys from or sells to someone else will feel the effect. If nations respond with higher tariffs or devaluations of their currencies a global trade war could ensue. When the Chinese market implodes what happens to your investments that rely on exports, imports and global trade? US retail stocks look good after a successful start to the Christmas shopping season. But according to CNBC there is now a 70 percent change of a US stock market correction.

Don’t panic, but there is now a 70 percent chance of a U.S. stock market correction, according to research conducted by fund giant Vanguard Group. There is always the risk of a correction in stocks, but the Vanguard research shows that the current probability is 30 percent higher than what has been typical over the past six decades.

Vanguard, which manages roughly $5 trillion in assets and is a proponent of long-term investing, isn’t sounding the alarm bells to scare investors out of the market. But according to Vanguard’s chief economist Joe Davis, investors do need to be prepared for a significant downturn.

“It’s about having reasonable expectations.”

Look at your investments and which will depend on foreign trade or which are investments in foreign countries that could be hurt by another recession. Buy and sell accordingly and be ready when the Chinese market implodes





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