Two weeks ago, I wrote about the need to avoid China and companies affected by the Chinese economy. It seems that China is slowing and may even fall into recession. Last week, I updated that post and again stated my strong concerns about the news from Beijing. Today, I got some company in this position. Credit Suisse and Deutsche Bank AG both reduced forecasts for China’s growth this year. According to Credit Suisse, Corporate profits are falling, deflation is looming and China faces years of “weak” growth.
In my opinion, even Credit Suisse and Deutsche Bank may be understating the case for a Chinese downturn. Statistics out of China are suspect to begin with, but if there is a downturn, the government is unlikely to admit it. What this means is that if there is a major disruption of the Chinese economy, it is more likely to just burst upon the scene with little warning than would be the case with other more "transparent" economies.
Couple a looming Chinese problem with the events in Europe, and you get the imperative to avoid stock in financial companies. Personally, I have been getting smaller in that space for a while and plan to exit from it completely. Obviously, companies with major Chinese exposure are also not the place to invest at the moment. My suggestion is to put market funds into food and household products and other defensive stocks.
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