It is certainly the case that, at the moment, the Chinese shares are not performing to the same levels that they have in the past and have dipped compared to other emerging markets.
But while Chinese shares have lagged, this doesn’t diminish their long-term potential. China is a huge player in the global economy and its shares, just like those of any market, will rise and fall, so holding on through downturns ensures access to this powerhouse.
China’s share market has been one of the strongest in the world for the last 25 years, if not more, and despite short-term fluctuations, the sensible investment plan is to stick with it over a longer period.
Stockspot’s blend of emerging market shares mean that when some countries inevitably fall, other rise, balancing the investments over time and allowing investors to ride out peaks and troughs.
The benefits of diversification
Backed by Nobel Prize-winning research, Stockspot portfolios are designed using Modern Portfolio Theory, to provide the best risk vs reward, for your investment horizon.
At the heart of that is the idea that portfolios are built on combining asset classes which act and react independently of each other.
This combination of opposing assets is a practice that aims to smooth out market volatility, avoiding the large peaks or troughs that would follow if all classes were performing the same at all times.
Emerging markets, including China, play a crucial role in portfolio diversification as they exhibit a lower correlation to Australian shares than other sectors, such as global shares more generally.
This independence is beneficial in acting as a buffer against market turbulence and enhancing overall portfolio stability (albeit in recent years, this has seen them return poorly compared to other markets).
Diversification is the cornerstone of a robust and stable portfolio, and just as different countries experience varied economic fortunes, so do different asset classes.
While Chinese shares may be lagging at present, other assets – for example, global shares and gold – pick up the slack, so it’s important to remain focused on the long term objectives of your portfolio and to ignore the distraction of short term fluctuation.
What can I do if I want to remove Chinese shares from my portfolio?
At Stockspot, we believe that Chinese shares are important to diversify a portfolio, but we understand that not all investors may be comfortable with exposure to Chinese or emerging market shares.
Stockspot Sustainable Portfolios offer an alternative, with minimal exposure to Chinese shares due to their lack of exposure to emerging markets.
While Chinese shares will still be present (due to the sharemarket element), their presence will be less than 1%, which will lessen their impact on your investment portfolio.
And remember, divesting from Chinese shares now may limit potential gains during periods when the Chinese market outperforms, as it has done many times in the past.
While Chinese shares may currently seem unattractive, we believe their intrinsic value remains undeniable.
Investors can navigate periods of market volatility within one asset class by maintaining a diversified approach and viewing their investments through a long-term lens.
Remember, investing is a journey, not a sprint. Stay diversified, stay informed and stay the course.
Disclaimer: Investment in financial products involves risk. Past performance of financial products is no assurance of future performance.
This article contains general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this information, you should assess your own circumstances or seek advice from a financial adviser.
