September 2021 Portfolio Review Meeting Recap

Zachary Bouck |

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It's the second Tuesday of the month when I wrote this, which means it's time for our September Portfolio Review Meeting (PRM) recap. As a reminder, our PRM is an opportunity for all Denver Wealth Management (DWM) advisors—plus a few select fund analysts—to hit the virtual war room and discuss our portfolios. We examine our clients' holdings, look at what's working, what's not working, and where we see the markets heading.

This month, international investments were the hot topic, specifically China. What is going on with China right now, and what should you do with Chinese portfolio holdings? These are difficult questions to answer because, though China has the second-largest global economy, that could change in a matter of days.

What many American investors may not realize is how the performance of Chinese companies can impact us here at home. 

As always, if you have any questions about your specific portfolio or long-term financial plan, call our office at (303) 261-8015 or schedule a free consultation on our website.


An interesting note before I get started is that one cannot earn a degree explicitly in stock picking or investing—at least Google doesn't think so. The skill is essentially a trade learned through an apprenticeship. And one thing most novice investors quickly understand is the importance of international diversification.

It's true. Using China as an example, historically, there has been a negative correlation between the performance of Chinese and U.S. investments—as one goes up, the other goes down. From 2001-2011 the S&P 500 dropped to a 0% rate of return, yet emerging markets flourished during the same period.

That is exactly why so many wealth management professionals—Dave Ramey included—advise folks to invest at least 25% of their portfolio in international companies. Diversification in negatively correlated markets can balance your investments.


From an economic perspective, the United States is the largest country in the world (go us!). The second-largest economy is China. 

From 2010-2020 China's leader, Xi Jinping, had a goal to double their gross domestic product (GDP) and income per capita (income per person) on the foundation of free-market incentives. China lowered taxes, reduced government control, and allowed businesses and wages to expand, increasing employment levels.

Essentially, by letting the entrepreneurial spirit run wild, Chinese businesses grew, in turn promoting the nation's economy.

However, according to a 2017 Reuters article, a senior Chinese Communist Party official announced they would discontinue that ambitious goal in 2021 to "focus more on higher-quality, long-term growth."

So, if China no longer aims to double its GDP, instead adding more government control and regulations, what happens to those companies that spurred the previous decade-long growth?

Here is a list of more recent headlines:

"Popular language-learning platform Duolingo has been removed from some Chinese app stores, amid the country's crackdown on for-profit education services." (Source: TechStory)

"Shares of video-streaming app and TikTok rival Kuaishou fell on Friday after state media lambasted online video platforms for corrupting the nation's youth." (Source: SupChina/Reuters)

"Tencent Holdings-backed Chinese education firm VIPKid said on Saturday it would stop selling classes taught by foreign-based tutors to students in China..." (Source: Reuters)

"The China Banking and Insurance Regulatory Commission is going to target the country's growing online insurance sector." (Source: SupChina)

"China Affirms Tech Crackdown Will Continue with More Regulations Rolling Out Through 2025" (Source: SupChina)

"China Steps Up Antitrust Campaign with New Draft Rules Targeting Internet Companies" (Source: SupChina)

"China Plans to Ban U.S. IPOs for Data-Heavy Tech Firms" (Source: Wall Street Journal)

"Beijing Restricts Kids to Three Hours of Gaming Per Week" (Source: SupChina)

As a father of a video-game-loving ten-year-old, fine, I sort of understand the video game restrictions. But, three hours per week? That's a little much.


So, for those of us who hold that belief of allocating 25% of our investments to international companies: what do we do when the second largest global economy is taking such heavily restrictive measures?

The markets don't like this, and investors don't like this; but, to what extent are investors too cautious in the short term?

Our Investment Committee discussed that significantly in our PRM, trying to determine when it's OK for an investor to disregard traditional buy-hold investing. Despite the Chinese markets moving against the U.S. historically, if they continue this crackdown, their markets will move independently of ours, nullifying that international safety net I touched on earlier.

Simply stated, if China is an investor-friendly economy, then we want to invest there. If China is not an investor-friendly economy, then we don't want to invest there. So, unless the Chinese government promotes business development and growth, now may not be a great time to invest in China.


That doesn't mean investors should sell out of international or emerging markets entirely—there are plenty of other investment-worthy countries. However, as the second-largest global economy, investors should give heavy credence to Chinese investments right now.

Take Japan, for example. Granted, I was only a wee tot in the 1980s, while 80's hair bands took over the U.S., the Japanese economy was taking over the world—starting with steel then branching out to automotive and tech. However, the Japanese economy transitioned into a period of stagflation and, coupled with an aging demographic, became a poor investment for 25 years.

Even today, investors will come across international funds ex-Japan because the country fell from an economic power-player.

Is that the future for China? Who knows. However, China being an economic power-player right now doesn't mean they need to be an economic power-player in our portfolios.


To wrap things up, we can't predict the future. We can, however, utilize the information that we have right now, look at how similar situations have played out over history, and take action if needed.

For international investors, look through your holdings to determine the companies in which you're invested. How would the Chinese companies, if any, bode through a continuation of this regulatory crackdown?

Another area to examine is your employer-sponsored plan, if applicable. What do those international investments look like?

This topic is undoubtedly complex—if you have any questions or need help with your portfolio, call our office at (303) 261-8015 or schedule a free consultation on our website.



Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Denver Wealth Management, Inc., a registered investment advisor. Denver Wealth Management, Inc. is a separate entity from LPL Financial.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

All investing includes risk including the possible loss of principal. No strategy assures success or protects against loss.

All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

International investing involves risks such as currency fluctuation and political instability and may not be suitable for all investors.

Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Any investment should be consistent with your objectives, time frame and risk tolerance.

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