Three Sectors To Avoid As China Stock Market Takes A Bumpy Ride

“I’m involved in the stock market, which is fun and, sometimes, very painful” ­– Regis Philbin.

Indeed, the 7% plunge that the Chinese stock market suffered on Jan 4, 2016 brought back agonizing memories of last year’s Black Monday on the Shanghai Stock Exchange. On Aug 24, 2015, the stock market there crumbled, the impact of which persisted over a stretch of three weeks.

In fact, this time not only did the Chinese investors suffer – stakeholders all over the world felt the heat of this market slump. This triggered a wave of sell-offs across the global stock market as anticipation of a further downturn in China and fresh geopolitical tensions in the Middle East spooked investors.

Evidently, while the Dow Jones Industrial Average Index (DIA) crashed more than 400 points on marking Dow’s worst opening to a new year since 2008, the tech-heavy Nasdaq composite plunged 104 points on the same day.

How to Brace Yourself?

A still-bumpy global scenario leaves us with the billion-dollar question: Where should investors put in their money? With a wave of pessimism sweeping the market and shaky investors further terrorized with RBS’ forecast that the Wall Street stocks might fall by 10%; let us set our analysis with an alternative view. We wish to warn our readers to exercise caution before investing in sectors that have either completely crashed or are exhibiting frail fundamentals post the fresh China market downslide.

Based on a list published by Bloomberg that depicts each sector’s individual year-to-date performance, we hereby select three sectors that rest at the bottom, namely Basic Materials, Energy and Healthcare. Each of these sectors has dropped more than 9% since Jan 4. We discuss below the current trends prevalent in these sectors and a few underperformers in each from which investors should maintain a distance.

Basic Materials: The basic materials sector, which includes stocks that deal in mining and refining of metals, chemical producers and forestry products, generally moves in tandem with economic business cycles. In the face of another anticipated wave of liquidation across the global stock market on further devaluation of the Chinese currency, a downward business cycle is currently looming and the impact is expected to continue, at least in the short term.

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