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As President Xi of China was elected for a third term, he made abrupt changes by filling major roles with loyalists.* This gives him even more control and may lead to incentivising more socialism which could hurt business profitability.* A report from Investors Business Daily sums up the recent performance.
“The Invesco Golden Dragon China ETF (PGJ), which tracks the Nasdaq Golden Dragon index composed of U.S.-listed Chinese companies, gapped down 14.2%, hitting the lowest level in nearly a decade.”*
Global markets can help us gain perspective on the economic conditions we are facing. Aside from that, international investments help us diversify our investments so that we are not caught with all our eggs in one basket so to speak.
The implications of Xi’s actions will continue to affect our economy. The U.S. is already taking measures to limit the access they have to U.S. technology such as with microchips. We are not invested in the Chinese market, but the global market’s reaction to this news could not be understated.
Earnings from the third quarter of 2022 are being reported by a few companies each day of the week. Meta’s (formerly Facebook’s) stock price dropped over 20% in one day last week after their update came out worse than expected.** But that was not the only one.
“Amazon (AMZN) shares tanked nearly 20% in after-hours trading on Thursday after it reported misses on revenue and sales for its Amazon Web Services cloud business, along with disappointing fourth-quarter guidance.”***
It is not only the last quarter that was negative but also the outlook for the next quarter that has investors spooked.
With all this bearish (negative) action in the markets, we will see how investors respond to new changes. Overall, markets did not sell off as much as these individual stocks but they may change course this week if the negative sentiment spreads. On the contrary, some investors may see this as a sale on well known companies. However, it is not a part of our process to try and buy things just because they are down or cheaper than they once were. As we have seen this year, the cheap can continue to get cheaper.
Our plan is to keep most of our portfolios in assets that are not very volatile until the bearish storm passes. Moreover, if asset prices begin to climb back in a meaningful way, we will start adding more risk. Until then we feel comfortable with our positions which are limiting our downside exposure to risky assets.
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Our last portfolio reallocation: 5/19/2022.
The weekly market insight provides a window into the process we use in our investment management process. At Breakaway, we believe markets are always changing and require a nimble yet data-oriented approach.
Our process attempts to identify trends and momentum in the financial markets. With that information, we align our clients’ portfolio accordingly in the hope to help our clients accomplish their life goals while attempting to lower the risk of a large drop in their portfolio.
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*Aparna Naraynan. “China Stocks Turn Into Sea Of Red After President Xi Jinping Tightens Grip On Power”. 10/24/22. Investor’s Business Daily. https://www.investors.com/news/china-stocks-china-etfs-bloodbath-xi-jinping-grip-on-power/
**Alexandra Garfinkle. “Meta stock is in free fall”. 10/27/22. Yahoo Finance. https://finance.yahoo.com/news/facebook-parent-meta-stock-down-151234088.html
***Alexandra Garfinkle. “Amazon stock tanks 20% after revenue and guidance miss expectations”. 10/27/2022. Yahoo Finance. https://finance.yahoo.com/news/amazon-third-quarter-earnings-163558342.html
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