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It all started in China. Chinese stocks have fallen
sharply over the past few weeks, and the government
has pulled out all the stops to prop up the market.
Yet after regaining some ground, the sell-off picked up
with a vengeance in the third week of August and
continued into the fourth week. This time, the rest of
the world joined in, and markets in Europe and North
America plunged lower, too.
Let’s take a look at what’s happened and what some
top fund managers think in the wake of the market
volatility. I’ll also update you on where funds stand as
of the end of August.
Who Cares About the Chinese Stock Market?
The Chinese A-share market is for Chinese investors.
Americans and Europeans can’t invest there, though
they will be allowed to in the near future. It’s a very
young market, and that’s apparent in the short-term
way people invest there and the way regulators and
authorities intervene with a heavy hand.The market
had a huge runup and has now given up most of its
gains from the past year.
China has responded to the sell-off with a variety of
measures, including temporarily banning sales
by large shareholders and most recently telling the
state’s pension fund to move from a
0%
stock
weighting to
30%
. It’s a little odd that the govern-
ment would get so involved given that a very
small percentage of China’s population owns stocks.
The A-share market’s value is very large. It would
account for nearly one third of the market capital-
ization of emerging-markets indexes if it were
included in them. Yet if it were merely in the throes
of speculative frenzies, it would barely register
in the rest of the world. But there’s more to it than
just the ups and downs of China’s A-shares ...
Everyone Cares About the Chinese Economy
China’s sell-off wasn’t just about speculation. It also
reflected a very real slowdown in China’s economy,
and that’s what has the rest of the world worried.
China’s growth has been a big boost to the global
economy at a time when Europe has had tepid
growth and the U.S. economy has only recently
started growing at a healthy clip.
China is a massive consumer of natural resources
such as oil and copper, and, therefore, every uptick
or downtick in its economy spurs a big move in
commodity prices. Further signs of economic weak-
ness in China led oil prices to fall below
$40
a
barrel before rebounding slights. That hurt commodity-
producing countries and markets, particularly
those in emerging markets, which have borne the
brunt of the sell-off.
The trigger for the latest market downturn was a
surprise move by China to allow the renminbi to drop
to a lower peg versus the U.S. dollar. China hopes
to boost exports by allowing its currency to fall. It also
aimed to beat the U.S. Federal Reserve to the punch
by preventing it from raising rates in September. And,
in fact, the Fed is signaling that it probably will
postpone a rate hike until later in the year. This in turn
caused the dollar to fall versus many currencies, and
many emerging-markets currencies have fallen as well.
Making Sense of the
Market Tumble
Fund Reports
5
Harding Loevner Intl Eq Inv
Sequoia
Sound Shore Investor
Morningstar Research
8
An Active/Passive Barometer
The Contrarian
10
Following in Buffett’s Footsteps
Red Flags
11
We Spotted a Turnover Spike
at These Funds
Market Overview
12
Leaders & Laggards
13
Manager Changes and News
14
Portfolio Matters
16
A Bucket Portfolio for Tax-Sheltered
Vanguard Accounts
Tracking Morningstar
18
Analyst Ratings
Income Strategist
20
Adjusting to a Rising-Rate World
Changes to the 500
22
FundInvestor 500 Spotlight
23
Follow Russ on Twitter
@RussKinnel
RusselKinnel, Director of
ManagerResearch and Editor
FundInvestor
September 2015
Vol. 24 No. 1
Research and recommendatio s for the s riou fund investo
SM
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