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Submerging Markets

Mike Zaccardi

JULY WAS ANOTHER positive month for U.S. stocks, which gained 1.7%. But overseas markets were down 1.4%, with emerging markets faring even worse, tumbling 5.9%.

Last week, the Chinese government clamped down on its education and technology industries, sparking a sharp selloff. The return of Vanguard FTSE Emerging Markets ETF (symbol: VWO), which is 40% Chinese stocks, briefly turned negative for the year, while U.S. stocks continue to sport year-to-date gains of more than 15%. Sentiment is so bearish that The Economist featured emerging markets on its cover this weekend.

The prudent course of action is to rebalance your portfolio once or twice a year to ensure your asset allocation fits with your long-term goals. Emerging markets comprise about 11% of the total world stock market, as measured by Vanguard Total World Stock ETF (VT). Straying from that number is effectively an active bet for or against emerging markets. When analyzing your portfolio’s composition, keep in mind that broader international funds may have a significant allocation to emerging markets.

Volatility in any one market segment can prompt investors to question their allocation. While this past week’s steep decline in emerging markets is no more than a blip, it’s been many months since we’ve seen that sort of short-term hit in the stock market. It’s a little reminder to always keep a long-term focus when the headlines turn scary.

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Roboticus Aquarius
Roboticus Aquarius
1 year ago

Tbh I’ve considered directing new contributions into a chinese equity etf. It’s great buying equities when they are on sale. However, I am already overbalanced in EM somewhat, so… no picking up nickels in front of a steamroller.

However, I just did exactly as you suggest, rebalancing my current investments to reduce risk (roughly from 80/20 back to my target of 75/25).

Last edited 1 year ago by Roboticus Aquarius

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