I spent much of the weekend, and all of this morning after the Asian markets closed, reading the news, the analysis, the strategy commentaries, and the data. I see a great deal of angst being generated by people who profit from scaremongering. I haven’t turned on CNBC yet and I likely will not. I will eagerly read the views of the more erudite financial types who will publish as the day goes on but unless I see something compelling, I remain firmly in the camp that this is an emerging markets rout. And a buying opportunity for anyone with an appetite for short term risk and a little cash. We are US investors, and although there will be short term fallout, and maybe a little medium term discomfort as US multinationals assess the expected or real impact on their revenues, I have not found any information that persuades me that our economy will be tanked by this. Australia should be worried – their economy is heavily dependent upon commodity prices – but US investors in the US equity markets, not so much.
China is a closed economy and a communist country. According to The Economist magazine, less than 15% of household assets are in stocks. And what % of US companies, in the aggregate like the Russell 3000, derive enough of their revenue from the Chinese and other emerging market consumers that requires their robust economies to sustain the steady, if tepid, growth trajectory in the US? My hours of research have not unearthed an adequate answer to- just how exposed are US companies to Chinese and other emerging market risks?
So do we really need to fear that countries whose consumers may not be that much affected anyway will stop generating what is likely a fairly small percent of revenue growth? It might tame some revenue growth expectations, but how dependent upon those customers are these large multinationals? Emerging markets have always made great headlines, but how much do they really matter to your portfolio?
One thing that does bother me, and has for years, is that sadly, emerging and other international markets now matter to many Americans who have fallen for the 401k Target Retirement Date funds that have been irresponsibly stuffed into every 401k plan in our country. That is the topic of an upcoming blog piece but for now, my clients rest assured that in their portfolios 100% US dollar securities is their neutral position, not the 60% that these Target Date funds, and random broker salespeople, have put in other investors’ portfolios.
I’ll be back if I discover anything interesting.