A. Good question. But first, let’s add some context.
Chinese authorities have recently moved ahead to ensure tech firms in that country remain fully regulated and subject to all of the laws and regulations of that country. As such, the share valuations of some companies have declined. This is pretty typical as investors need to assess what long-term impact any Government oversight may have on the trading and profitability of firms impacted.
Here in Ireland, while some people may own shares in firms such as Alibaba and so forth, not everyone does. However, of greater significance is the indirect ownership in shares people may have via their private pension accounts. There are thousands of different funds available and pension managers have broad discretion as to how they construct their investment portfolios. As such, depending on the fund, there can be varying degrees of exposure to firms that are based in China and subject to the immediate actions of Government regulations there.
When it comes to one’s personal situation, the level of exposure will vary. Even if they have some China exposure, its overall impact may be negligible. For example, in well diversified portfolios, where some firms that are based in China may fall in value, competitors in the EU or North America may rise as a result and so overall, there may be no change in fund valuation. However, where there is more exposure to a specific country, region, industry or business the risks to valuations will increase which is why it is really important that there is broad diversification.
If one’s fund is well diversified and there is ongoing risk rebalancing of the fund, the exposure will be managed accordingly. In other words, as long as the fund managers are doing their job, you should be fine in the long run!
Questions From The Floor is part of and ongoing educational dialogue where questions posed by our seminar attendees are answered.