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How Russia and China Might Impact Portfolios

How Russia and China Might Impact Portfolios

October 31, 2022

Concentrate on your investment strategy when turbulence hits the markets

Do events overseas, like a belligerent Russia and a slower-growing China, make you nervous about your portfolio? Absent a full-scale war in Eastern Europe or a complete collapse of the Chinese economy (both possible yet highly doubtful), your holdings should be ok.

Russia and China are among the factors that weigh down U.S. stocks thus far this year, along with concerns about sluggish economic growth and tepid future corporate earnings growth. And American investors are anxious these days: The skid stocks took this year made everyone from millennials to the Greatest Generation anxious about any string of down days for the big indexes.

Russia’s Troubles

Yet the Russian stock market has suffered far more than ours since it invaded Ukraine. From a recent peak in February 2022 to a month later, Russia’s MICEX index tumbled over 50%. With the easing of war talk and the U.S. saying it won’t use military force in the dispute, the Russian exchange crept back up, but then dipped again as the world imposed more economic sanctions on prominent Russians and Russian companies. It is now is more than 40 % off its 2022 high.

True, anything could happen up ahead. In Ukraine, the situation is fluid. Russia wants the real estate. The cost: even more economic sanctions, probably harsh ones.

At first, the sanctions moves were largely symbolic: especially asset freezes for individuals. But then the asset freezes were widened, including financial sanctions for Russian banks, an embargo on certain exports to Russia, and the European Union opting to get more of its energy supplies from other nations.

The truth is that the West has very little ability to retaliate against Moscow, which translates into a status quo that is unwelcome, except that it likely means little damage to the markets.

China’s Troubles

Adding to investors’ anxiety this year, China is not growing as fast as it has in the past, when it regularly expanded at a double-digit clip. The World Bank recently cut its full-year projection as its exports were down year-over-year. And analysts project China’s industrial output will slow down.

These disappointments are rattling Wall Street and impacting the metal markets.  A little known fact is that besides being the world’s top copper user, China also employs the base metal as collateral for bank loans, so falling cooper is a double whammy in China.

Focus On Your Strategy

We never truly know what tomorrow will bring, so we don’t really know what will happen on Wall Street tomorrow although we can always make educated guesses.  Now is time to not panic and instead be calmly focused on:

  • Are the gains and losses in some areas of your portfolio over the last few quarters well above or well below target?
  • Is now the time to rebalance into assets that have lagged the past few years?
  • Is it wise to increase cash while actively looking to diversify your portfolio across different asset classes including alternative investments?

Concentrate on your strategy when turbulence affects the markets. History has shown that staying in the market can prove the right move, even when the news seems cataclysmic (say war with Russia).

Sticking with principles of diversification can prove wise in both challenging and record-setting markets as long-term focus and patience have rewarded investors in the past.


Important Disclosures

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

MICEX Index is an unmanaged index which cannot be invested into directly.  Past performance is no guarantee of future results.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.

Alternative investments may not be suitable for all investors and should be considered as an investment for the risk capital portion of the investor’s portfolio. The strategies employed in the management of alternative investments may accelerate the velocity of potential losses.

MICEX Index: This is a capitalization-weighted composite index based on the prices of the 50 most-liquid stocks on the Moscow Interbank Currency Exchange.

This article was prepared by FMeX.

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