Be wary of over exposure to China

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Ongoing extensions will stoke further inflation with a large portion of the industrial supply chain originating from China

China’s latest and ongoing Covid lockdown in Shanghai and dozens of smaller cities is a wakeup call for investors to remain alert to shifts in China’s zero covid policy according to Datt Capital founder and chief investment officer, Emanuel Datt.

“China is the engine room of the global economy, and any further extension of lockdowns geographically will weigh heavily on the global economy,” says Datt.

“In particular, ongoing extensions will stoke further inflation with a large portion of the industrial supply chain originating from China.

“Whilst we have observed a definite shift towards re-onshoring and localisation, this process of ‘de-globalising’ a supply chain takes years. We have observed a shift towards alternative suppliers such as India and south-east Asian nations as firms look for more diversity in their supply chain.

“However, we believe the shift towards localisation will persist due to the rise in shipping costs and decrease in certainty for shipping times.”

Datt notes that ultimately investors should consider their portfolios being too heavily skewed towards China and should consider action to diversify to mitigate the effects of an extended lockdown in China.

“We hear a lot in the media about Tesla’s Shanghai factory shutdown and production problems but this is the tip of an iceberg with Covid lockdowns impacting myriad businesses through supply chains that originate in China”, he says.

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