This morning in our portfolio strategy meeting we had a hot debate over China. Currently, there are several countries around the world that could have an impact on your portfolio. Greece is having to make another decision about their relationship with the European Union and in Iran there is hope that a decision could be made tonight or later this week about their nuclear program. At the moment, the debate over China is something investors should be watching.
Bobby Norman debates Franklin Bradford over China
Bobby Norman’s opinion is that, in the short term, China’s current market situation is not that big of a deal. Only 1.5% of Chinese shares are owned by foreigners. China’s market is still up for the year and most Chinese people keep their wealth in cash and real estate. Stocks only make up about 15% of the average Chinese family’s household assets. There is no sign that the Chinese people are concerned about their market. Finally, all Chinese banks are owned by the communist government which has vast resources to fine tune the economy.
Franklin Bradford disagrees
In this debate over China Franklin Bradford recognizes that when you combine the Shanghai Stock Exchange and the Shenzhen Stock Exchange, they make up the 2nd largest exchange in the world. The communist government controls the banks and can report anything they want. In fact, the government has shown concern over their markets by injecting cash into the system, suspending all initial public offerings, forbidding executives to sell their stocks for the next six months, not allowing half of their stocks to be traded, and by encouraging their pension fund companies to increase their positions in Chinese stocks. While the market situation in China doesn’t look contagion right now, if the government is this concerned, it has the potential to be.
The state of U.S. economic status
We still believe interest rates will stay down and not be raised for some time. We also believe that the United States is a safe haven for the world to invest. Deflation is still the primary problem. To explain it further, you can look at it like owning a suit. When you buy a suit, that’s buying a product. When you have it dry cleaned, that’s a service. In our economy, the price of products, like a suit, have gone down. But services, like dry cleaning, has gone up 9.2%. Prices directly affect whether or not the Fed raises interest rates but they are having a hard time assessing which way prices are going.
We’d love to hear if you agree with Bobby or Franklin or if you have your own opinion. Please send us your comment.
fi-Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. fi-Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.
The economic forecast set forth in this presentation may not develop as predicted. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
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