By Barbara Magor Deel
The Chinese economic slowdown has certainly been dominating the financial news for the beginning of 2016. Measured by the Shanghai Composite Index, China’s stock market fell by approximately 20 percent since the beginning of the year amid deepening fears of a Chinese slowdown and its impact on oil prices. According to the National Bureau of Statistics, the fall in manufacturing activity can be attributed to weak new orders, exports, and production. Considering there has been considerable global volatility in general, the government needs to pay close attention to economic trends and proactively make adjustments.
So far the capital outflows out of China continue to depreciate the Yuan, the Chinese currency, and the government is scrambling to provide more stimulus measures to prop up manufacturing activity. Japan has actually instituted a “negative” interest rate policy to achieve higher inflation, which was seen as very positive for the export driven economy of Japan struggling with lower oil prices.
As I travel abroad this week to Israel, I can’t help notice and take pride in our strong dollar while shopping. Many currencies tie themselves to the U.S. dollar to enhance their own financial stability. As the dollar advances against most currencies across the world on expectations of rising U.S. interest rates, other countries suffer more if they are dependent on trade. Unfortunately, this advance by the U.S. dollar makes our American companies less competitive in world markets and pushes exports down.
Foreign direct investment is different from portfolio foreign investment by the level of control of that investment -- since stocks and bonds in another country are a passive form of investment. Asset allocation in your own portfolio goes a long way to determining your investment results. Allocating your assets is critical to getting the most from your investment plan and achieving your financial and investment goals.
Remember that international exposure may take the form of stocks or bonds and should be viewed as a portion of that particular allocation. If your target international stock allocation is 20 percent and you have reduced your equity portion to 50 percent, you now have 10 percent international equity exposure. Adjusting these rates should be done on a periodic basis, not only during times of increased volatility.
Contact your trusted certified financial planner to review your current investment allocation to determine the level of exposure in your portfolio to international investments paying close attention to the level of adjustment amidst the current market rout. Email me your questions at email@example.com.
Barbara Magor Deel is a certified financial planner and a chartered financial consultant with EFS Generation Income Planning in La Vernia.