China is the second largest economy in the world by GDP at $14 trillion according to the IMF, behind but catching the US at $20 trillion. The Chinese economy has been growing by 6% per annum, 4 percentage points ahead of US annual GDP growth. Chinese economic growth has been fueled by a massive expansion of government debt and this debt-fueled growth is starting to negatively impact the performance of Chinese companies trading on the stock market. While US equities continue to rally, albeit with performance being concentrated in just a handful of technology names, Chinese equities have started to drop sharply in recent months. The Shanghai Stock Exchange Composite Index has fallen -20% from the highs set in January 2018 and has started to accelerate lower again in recent weeks.
China makes up a full third of the Emerging Markets Index, so Chinese equities need to stabilize before EEM has any chance of resuming its uptrend. A reversal of the recent strength of USD would help, but for now, the Active Asset Allocator continues to hold a 30% allocation to cash in advance of the next opportunity to invest.
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