3 ways China has impacted my investment outlook

As one of the biggest country economies, China has a big impact on global demand and stock markets. 

Just look at the commodity price rally we have seen in the past year. It was all down to Chinese government spending at a time when the global economy had slumped. FTSE 100 miners have been on a roll, as a result. 

Chinese authorities drive cryptocurrency meltdown

If anyone had any doubts about the influence China wields, they would have become clear this week. Cryptocurrencies had a meltdown after Chinese authorities barred financial services companies from offering cryptocurrency-related services. 

Bitcoin was down by 40% from the highs of a month ago on the news. By Wednesday, shares of bitcoin miner Argo Blockchain were down by over 20% from last week alone. 

To be fair, if policymakers in any big economy had said the same thing, it would probably have had the same effect on cryptocurrencies. But this time, it was China. 

I am wary of crypto stocks precisely because of this speculative fluctuation. It would form no more than 1%–2% of my portfolio. But if I do decide to buy a share like Argo Blockchain, I’d want to do so on a dip like this. 

Tesla’s China troubles

Electric vehicle (EV) stocks like Tesla can also face the heat from China. 

China is a big automobile market and by the end of the decade around 50% of its auto sales are expected to come from EVs according to research by consulting firm Deloitte. It already accounts for a fourth of Tesla’s sales already, and going by these projections could continue to be significant for the EV manufacturer. 

But China has security concerns related to Tesla’s cameras. Despite assurances by the EV biggie, fresh reports about this keep showing up. 

While it is possible that the company can recover from any setbacks in the Chinese market, considering that three-fourths of its sales still come from elsewhere, it could have a bearing on the future growth trajectory. 

However, that is not my worry for today, because I have valuation concerns about the Tesla stock, as I have argued in the past. 

Tesla’s loss maybe NIO’s gain

The more interesting aspect of this development for me is what it means for an EV share like NIO, which is a Chinese company. Among all EV shares listed at US exchanges, it is the only company that comes anywhere in comparison to Tesla. All the others are either too new or represent related products and services. They are not direct peers to Tesla. 

NIO’s share price may have come off the highs seen earlier this year, but compared to a year ago, it is still up by 10 times. I am watching this stock especially carefully now, as it may just capture market share from Tesla as the latter faces challenges in China.