China Market Mayhem!

By John Stewart, chief investment officer at Farmers Trust Co.
CANFIELD, Ohio — Chinese government crackdowns sent large Chinese tech company stocks plummeting this past week, and emerging market stock indexes and mutual funds felt the pain.

Well-known Chinese companies like Alibaba, Tencent and Baidu all fell more than 10% in the past week, and investors got a not-so-subtle wake-up call that China is still controlled by a communist government. It is important to keep in mind, however, that risk and volatility creates opportunity.

In fact, the investments in which people perceive the most risk may actually be the least risky. This is simply due to the fact that lower prices and valuations compensate you for being bold in the face of others’ fear.

We see tremendous opportunity in emerging markets (which include, but are not limited to China) for several reasons: You’re only paying about 60 cents on the dollar compared to US stocks for the same amount of earning power. Many emerging market countries have better demographics and growth potential than the U.S. And last but not least, a persistent weakening of the U.S. dollar will act as a tailwind for emerging market stocks.

Just keep in mind that emerging markets are still volatile and risky, and should be only a modest percentage of a well-diversified long-term investment portfolio. I’d encourage speaking with a qualified investment adviser before investing.

Featured Insight: Follow the Dividend Growth

Talking Points:

• Sales growth is good, earnings growth is better, but the conservative investor may be best served over time by seeking out companies with consistent growth in their dividend payout
• In today’s market of high-flying tech stocks and cryptocurrencies, investing in dividend growth may not be the sexiest approach, but it is one that will likely produce respectable results without taking crazy risks
• Why dividends? First of all, a company needs cash to pay them, so the longer their track record of paying them, the greater level of trust the company is reporting accurate financial data. In addition, every time a company raises its dividend, it represents a strong signal from management to investors regarding management’s outlook for the business.
• Be wary of buying stocks with abnormally high dividend yields. Anything over 5% in the current market should warrant extra caution. Dividend growth and consistency are more important that the current dividend yield.
• There are numerous companies that have track records of raising dividends every year for 25, 30, and even more than 50 years. Since the value of any investment is ultimately derived from the cash flow it produces, the price of a stock with consistently growing dividends will ultimately take care of itself. So just sit back and get paid while you wait!

Looking Ahead: Get Ready for Back to School Season

Talking Points:

• Unless COVID somehow throws a wrench in the works, this is shaping up to be one of the strongest seasons for back to school shopping on record. Consumers are flush with cash and confidence is running high based on last week’s consumer confidence survey – the highest since February of 2020 to be exact – before COVID reared its ugly head.
• Assuming everything goes according to plan and in-home schooling becomes a thing of the past, back-to-school spending could provide the economy with its next leg of growth as we move through the back half of the year.
• The bad news could be that expectations are already sky-high, so any disappointments, from the virus or otherwise, could be met with pressure from the markets in the sectors most sensitive to the consumer.

Published by The Business Journal, Youngstown, Ohio.