Commentary: August 02, 2021
The Chinese dragon cast a shadow over free trade and foreign investment last week.
For decades, investors have recognized the investment potential of China. Since the country opened to foreign trade and investment in 1979, its economy has grown rapidly. Through 2018, its gross domestic product (GDP), which is a measure of economic growth, increased by 9.5% a year, on average, according to the United States Congressional Research Service.
The country’s gradual economic development lifted millions out of poverty. In 2020, about 20 percent of the world’s middle class lived in China. China’s middle class has an appetite for goods and services that rivals that of America’s middle class, creating demand for a wealth of goods and services, reported the Brookings Institute.
In recent months, investors have been unsettled as Chinese authorities aggressively implemented new regulations for its online education industry and its technology companies. Austin Carr and Coco Liu of Bloomberg reported:
“President Xi’s government has outlined sectors it wants to prioritize, including semiconductors and artificial intelligence. Xi has called the data its tech industry collects ‘an essential and strategic resource’ and has been pushing to tap into it for years.”
In early July, the Cyberspace Administration of China launched an investigation of the nation’s largest ride-hailing service company for monopolistic behavior. A month before, the company had raised $4.4 billion when it listed shares on the New York Stock Exchange. Jing Yang of The Wall Street Journal recently reported the company is considering delisting in an effort to placate Chinese authorities and compensate investors for losses.
Last week, “The selloff in Chinese stocks went from an orderly pullback to a full-blown panic…after China told its for-profit education companies that they would have to become nonprofits,” reported Ben Levisohn of Barron’s.
The Securities and Exchange Commission responded by announcing that it would stop processing registrations of U.S. IPOs and other sales of securities by Chinese companies until specific requirements were met.
The Shanghai Composite Index finished the week lower, as did major U.S. stock indices, reported Barron’s. The yield on 10-year U.S. Treasuries closed lower, too.
READY TO COMPETE?
Watching the Olympics sparks the competitive spirit in many people. If you’re looking for a way to compete, try taking this financial literacy quiz. If you like, you can create your own event by having family and friends test their knowledge, too.
1. Which of the following does Experian say is the most important to your credit score?
- Payment history
- Amount owed
- Credit history length
- New credit applications
2. Which has the most risk, according to Investopedia?
- Owning a diversified portfolio of small, large and mid-sized company stocks
- Owning the stock of a large company
- Owning a portfolio of technology company stocks
- Owning a portfolio of small company stocks
3. If you put $100 in an account that earned 5 percent interest each year, how much would the account be worth after 10 years?
- About $105
- About $150
- About $160
- About $180
4. When shopping for chicken noodle soup, which of the following is the best value?
- The store’s brand
- The can with the highest discount
- The can with the lowest price per ounce
- The can with the lowest price in the size you need
You’ll find the answers below. When you have any financial or money questions, please get in touch.
Weekly Focus – Think About It
“An investment in knowledge pays the best interest.” — Benjamin Franklin, American statesman
(1) A; (2) B; (3) C; (4) C
J Thomas Knight, CFP®, CPA
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* This newsletter and commentary expressed should not be construed as investment advice.
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* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
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* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* Asset allocation does not ensure a profit or protect against a loss.
* Consult your financial professional before making any investment decision.
https://www.bloomberg.com/news/articles/2021-07-27/china-tech-crackdown-xi-charts-new-model-after-emulating-silicon-valley (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2021/08-02-21_Bloomberg_The%20China%20Model_3.pdf)
https://www.wsj.com/articles/didi-global-considers-going-private-to-placate-china-and-compensate-investors-11627551071 (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2021/08-02-21_Wall%20Street%20Journal_Didi%20Gloal%20Considers%20Going%20Private_4.pdf)
https://www.barrons.com/articles/should-i-buy-china-stocks-51627647310 (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2021/08-02-21_Barrons_Should%20I%20Buy%20Chinese%20Stocks_5.pdf)
https://www.barrons.com/market-data (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2021/08-02-21_Barrons_Overview_7.pdf)
https://www.barrons.com/articles/stocks-news-big-tech-dow-nasdaq-sp500-51627692565?refsec=the-trader (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2021/08-02-21_Barrons_Stocks%20Are%20Sturdier_8.pdf)