Over the past week, there has been a media frenzy about the looming fallout from Evergrande and its possible fallout around the world. There were several perspectives on the impact this would have on Indian markets and therefore on investment portfolios. Even some called it China’s Lehman moment, others brushed it off as a small aberration. While some believe this is just the tip of an iceberg and a growing sign of contagion, some believe it could be easily controlled by the administration.

The second largest economy has been in a reengineering phase, thus making policy decisions across sectors for their targeted outcomes. In an attempt to balance the demographic situation, they identified key areas for reform that could improve possibilities under the new vision. The Chinese government has limited the costs of education (online educational applications), the excesses in the use of technology (data collection, games), reducing the growing influence of the corporate world (profits, liability social) and continuing the program of ‘common prosperity’. At the same time, the government has stepped up the environmental agenda by limiting progress in certain sectors in an effort to meet very tight deadlines on stopping pollution levels.

These measures have started to structurally alter the economy as they embark on the new course, although this may seem like a method for madness, it disturbs the feelings of investors. This is happening simultaneously against the backdrop of the Covid pandemic and the resulting disparity in supply chains across the world. The rest of the world has also become aware of the heavy dependence on a country and has started to diversify the risks by replacing part of its supply chains beyond China. The animosity that prevailed after the pandemic transformed bilateral trade between countries, causing further disruption in the short term.

While I have my own take on this episode, I would refrain from making any predictions about what it turns out to be in the end. These developments certainly provide opportunities for India to take advantage of the diversification that the world is moving on, especially in the area of ​​manufacturing. However, it is not an easy transition despite the government. Continue the import disincentive program by proactively announcing various Production Incentives (PLIs) in several manufacturing sectors. It is true that macroeconomic changes along with fiscal and political incentives make India an attractive destination for diversification, but this may not always translate into reality. If you watch the news almost all the time you find something interesting or disturbing being reported. Within a week, there would be a feverish level of cacophony over the United States debt ceiling which, if not raised by its legislature, would default the United States on its debt payment, a first for this country. If that were to happen, imagine the extent of the sentiment collapse, although materially it may not translate to much. Markets are a collective manifestation of the major participants, their expectations and their emotions. Thus, the more people see certainty in the outcome of an event, the more the market gyrations tend towards it. At all times we come across some or other news that could or we assume to have an impact on how the markets tend to react. It is said that a successful investment depends on eliminating noise while focusing on what matters. It is important to separate the nose from the relevant and it is certainly not easy to do so. Remain like a saint or a yogi detached from the whole world or stick to your own philosophy.

A few simple steps to silence the noise are to have a news relevance filter. It is true that we may not have all the information about a future event, but the analysis should attempt to determine what risk it could lead to. Of course, diversification helps and therefore asset allocation becomes key in a portfolio. Also, having a wallet in the first place is good insurance.

Analyze how this news could impact your wallet and don’t cheat frequently. Accepting volatility is part of the game and navigating it would help do well in the markets. Respect your priorities, your appetite for risk and your tolerance. Resist being swept away by dips or boom cycles in the market, but make sure you have adequate protection to smooth out. The results of our investment would not depend on how the markets react to the news, but how we react to the market reaction. I prefer to focus on the things that are under my control. I know that I cannot control the movement of the markets, but I certainly have the power to control my emotions during these difficult times.

(The author is co-founder of “Wealocity”, a wealth management company and can be contacted at [email protected])


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