Predicting the future of international finance can be a fool's errand. Fluctuations in a small aspect of a small market can ripple in untold ways, changing the environment all the time, like the proverbial butterfly responsible for all of those hurricanes. Unfortunately, shrugging in the face of the unknown is really uncomfortable when it comes to finances. When we need to know how it will affect us, we go to financial advisors.
What about when we don't have any specific investments in either area? How might it affect us then? Below are some of the people likely to be affected by the economic news of China's struggles last week. Some it will hurt, some it will help and some we'll have to wait and see.
You might be hurt if:
Your portfolio is heavy on retail brands. In the last decade or so, American demand for retail goods slowed at the same time Chinese demand grew, so many of our corporations recorded sales growth that was largely or exclusively based on Chinese consumers. Yum! Brands, Intel, McDonald's and Starbucks all rely on Chinese consumers for between 15 and 20 percent of their revenue, and the Chinese middle class just got hit with back-to-back market crashes. We won't really know which companies were hit the worst until sales figures and quarterly reports start coming out, but you should identify which stocks you own that are heavily invested in China and see what they plan to do to keep afloat.
Your income is directly related to manufacturing. Banks around the world are stockpiling dollars because American currency seems much safer than a Euro that's dealing with a crisis in Greece or any Asian currency that is inextricably tied to China. As a result, the dollar has increased in value about 3% in the past month.
That sounds great, but a strong dollar makes exporting more difficult and makes imports cheaper, both of which make it harder for American manufacturing firms to compete with overseas factories. The Obama administration, like the Bush administration before it, has repeatedly pushed China to strengthen its currency for this reason, but has little to show for it. Some financial analysts suggested the Asian free trade agreement signed last month was meant to prevent exactly this kind of situation: Chinese market insecurities resulting in problems for American manufacturing.
You might be helped if:
You own a business. Whether your company is big or small, a strong dollar gives you a leg up right now. Obviously, you can order stock from overseas, knowing it will cost less and pocket the profit. It might be time to think bigger, though. If your dollar is worth 3% more than it was a month ago, that means any loan you take out will come at a discount. If you wanted to buy a $10,000 piece of equipment from China but scoffed at the interest rate, you can cut it considerably right now.
You own a home. It may not be obvious at first, but everything in your home goes through China. Your car had parts manufactured or assembled there, your clothes, your furniture ... everything. You'll feel the effects of Chinese firms trying to get sales every time you go to the store and possibly until Black Friday.
But you could also get a great deal on home fixtures and appliances very soon. Chinese factories need the cash, and with their domestic housing bubble bursting, you're the only one left to buy that amazing new washer/dryer. What if you moved up your remodel to this fall? You could be looking at glorious home goods at ridiculous prices.
Talk to Pen Air about our small business, automobile and personal loans. Let's see if we can help you capitalize on this opportunity. If you're not sure how to make the most out of this bubble, or if you're not sure your financial investments are safe, call one of our investment specialists at 850.505.3200 ext 8332.