The ongoing economic recovery in China may not significantly impact the S&P 500 , despite its sluggish pace. This was reported on Monday, suggesting that Chinese operations contribute to merely 5% of the total revenue of companies listed in the S&P 500, according to Scott Chronert from Citi.
Chronert further pointed out that a total loss of revenue from China would result in about a 7% decrease in the S&P 500 earnings, a substantial but not disastrous scenario. A 5% reduction in revenue from China would lead to a slight 0.3% decline in earnings-per-share (EPS) for the index. If half of all revenue from China were eliminated, the S&P 500 EPS would drop by approximately 3.4%.
However, investors are advised to stay vigilant as a slowdown in China could potentially cause future problems. This is particularly relevant for companies with significant weightings in the index, such as Apple (NASDAQ: AAPL ), Microsoft (NASDAQ: MSFT ), Nvidia (NASDAQ: NVDA ), Amazon.com (NASDAQ: AMZN ), Alphabet (NASDAQ: GOOGL ), Tesla (NASDAQ: TSLA ), and Meta Platforms (NASDAQ: META ). These seven major companies earn more than 10% of their revenue from China. Therefore, while the overall risk to the index is relatively minor, there might be pockets of risk and volatility if there's a significant slowdown in China.
Certain industries like tech, autos, household products, and pharma have a higher-than-average exposure to China which could lead to an unstable profit outlook. Furthermore, some U.S. businesses are at an even greater risk as they derive over 30% of their revenue from China. These include Las Vegas Sands (NYSE: LVS ), Aptiv (NYSE: APTV ), Estée Lauder, Lam Research Corp (NASDAQ: LRCX )., Western Digital Corp (NASDAQ: WDC )., and Micron Technology (NASDAQ: MU ).
Despite recent positive news about Chinese retail sales and industrial production, investors remain cautious. In August alone, foreign investors withdrew nearly $15 billion from Chinese stocks. While U.S. stocks have so far avoided the volatility experienced by offshore Chinese counterparts this year due to hopes of economic recovery, companies with substantial China exposure may continue to be viewed as less attractive by some investors.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
Add Chart to Comment
We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:
- Enrich the conversation
- Stay focused and on track. Only post material that’s relevant to the topic being discussed.
- Be respectful. Even negative opinions can be framed positively and diplomatically.
- Use standard writing style. Include punctuation and upper and lower cases.
- NOTE: Spam and/or promotional messages and links within a comment will be removed
- Avoid profanity, slander or personal attacks directed at an author or another user.
- Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
- Only English comments will be allowed.
Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.