According to the IMF, China has the fastest growing major economy in the world with growth rates averaging 10% over the past 30 years.

At the end of 2017, China’s economy was the 2nd largest in the world by nominal GDP and the world’s biggest by purchasing power parity next to the USA. This world position was mainly due to the Chinese manufacturing sector that exports a variety of goods that are extensively consumed worldwide.

In our last post we went through why China’s economy is slowing down and just how much it’s expected to slow during 2018, if you missed it you can read here:

The predicted 2018 slowdown in China would impact different regions of the world in different ways subject to their relationship with China. In countries reliant on commodity exports, such as Australia, Brazil, Canada, and Indonesia, the slowdown could have a negative influence on their GDP growth as demand reduces. However, the expected fall in commodity prices could be advantageous for the countries that consume said commodities, such as the United States and others throughout Europe.

Whichever way you look at it, the slowdown will call for some change on the part of the world economy. China has been the single biggest contributor to worldwide economic growth over the last few years, according to the IMF, contributing 31% on average between 2010 and 2013 alone.

Global investors should look to support themselves against some of the implications of a slowdown in China’s economy by taking measures to rebalance their portfolio to account for the expected changes. Some prospective steps to take could be to decrease commodity exposure, increase diversification along with hedging with Puts on Chinese ETFs.

Investors should also be conscious of the possibility of a sharp contraction in China. Like other economies, China could experience a boom-bust cycle that could hurt its equity and bond markets. The real estate was a major concern in 2016 and 2017, but other asset bubbles could become similarly oversized if the economy overheats and regulators aren’t able to rein in growth. These are significant trends that investors should keep a close eye on over time.

Our article next Thursday will explore in depth the impact the China slowdown is having and is expected to have on the currency markets specifically.

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