Welcome back to “Ask an Advisor,” the advice column where real financial professionals answer questions from real people. The topic can be anything in the world of finance, from retirement to taxes to wealth management — or even advice on advising.
Over the past two years, countless American investors have worried about a potential recession in the United States. Fewer people have worried about a recession in China.
But maybe they should. For decades, China’s economy seemed unstoppable — the country’s GDP grew at 14.2% in 2007, according to the World Bank, and by 2010 it had become the world’s second-largest economy. But in recent years, that dizzying growth has begun to falter — in 2022, China’s GDP grew by only 3%.
In addition, China’s real estate market is in crisis. After the country’s second-largest developer, the China Evergrande Group, defaulted on its debts, dozens of other developers followed suit. And as the New York Times has reported, almost 40% of China’s bank loans are tied to real estate, which means the crisis could spread to the banking system.
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All of this is more than enough to spook many Western investors, who have been fleeing the Chinese market in record numbers. Now a magazine editor in New York is wondering if she should do the same. Here’s what she wrote:
Dear advisors,
Ten or 15 years ago, investing in China seemed like a no-brainer, but today I’m getting the opposite feeling. Should I divest from Chinese stocks?
These days I keep seeing headlines about China’s increasingly authoritarian government, lack of transparency and a real estate bubble that might wreck its economy. And to top it all off, the country’s famous growth has slowed to a crawl, raising fears that it may enter a recession.
Should I pull my money out while I still can? Right now I have about $20,000 invested in an international index fund. I don’t know how much of that is in Chinese stocks, but I’m wondering if I should sell that part and invest it somewhere safer. What should I do?
Sincerely,
Nervous in New York
And here’s what financial advisors wrote back: