The main story of this week is the Chinese markets. They were down, but the Chinese government stepped in to prevent what could have been much worse. The only part of this that came as a surprise to me, was the fact that it took this long for the stock market to react to something that happened almost a month ago.
In response to COP 21 and recent smog trends China decided to take very strong and deliberate action to fight climate change and unhealthy air conditions. In the process they shut down a large segment of the factories in the country. With that, obviously, there were reductions in the quarterly outputs for those companies. On the First day of trading this year we saw huge downturns and read countless articles seeming to make apocalyptic claims about the Chinese markets. An article I read in the wallstreet journal made the argument that China is only delaying the inevitable by buying up stocks, artificially keeping the market afloat.
But lets not forget what country we are talking about. China is and always has been one of the largest players in the global economy. There is no reason to think that after thousands of years, this will be the year to end the Chinese influence in the world. China is clearly making significant political and financial effort to restructure its economy to meet the challenge of global warming and air quality. While taboo in western countries, the Chinese government choosing to step in and stabilize the public market to prevent a complete collapse while they reinvest in more renewable and green technologies. Perhaps rather than suffer from their own version of the 2008 crash, and suffer for years on end, they are taking a more forward looking approach and balancing an aggressive shift in their environmental policy with a subsequent industrial lag. Ordinarily such losses in one sector might completely scare away investors but knowing that the government is willing to step in to prevent a serious collapse investors will be less fearful, and they may be able to keep the market lubricated enough to transition. I don’t think it will be too long (maybe a year or two) until we start seeing large gains in the Chinese market, or perhaps we will see some moderate growth at the end of this next quarter.
All I know, is that with a market shifting down like this, I am ready to double down and hope for the larger potential gains down the road. With that said, it may be worthwhile to make sure your portfolio lines up well with future environmental policies, otherwise they may see some larger costs down the line. As for the next few months, they might be a great time to buy a few shares, bite the bullet, and take a short term loss that may end up paying off really well. But that is just me I guess, I am a big fan of risky bets and underdogs. Only time will tell if it pays off, but based on long term historical trends, I think the Chinese market will do fine, and the next two years will see incredible growth.