In a recent article penned by billionaire investor George Soros titled, 'The World Economy's Shifting Challenges', Soros outlined his view on how efforts to revive growth in the world's most influential economies was progressing. While the article covered the USA, Japan, the EU and China, it was Soros' comments regarding the Chinese economy which have garnered the most attention.
Soros stated: "The major uncertainty facing the world today is not the euro but the future direction of China. The growth model responsible for its rapid rise has run out of steam." He then went on to declare: "There are some eerie resemblances with the financial conditions that prevailed in the US in the years preceding the crash of 2008."
Soros has an incredibly impressive understanding of complex economic issues and an equally impressive record of turning his insights into profitable trades. This makes his comments worthy of attention by investors. What's more, there is speculation that Soros is putting his money where his mouth is and is currently shorting China.
Given Australia's important trading relationship with China and the exposure a number of companies have to China, it may be worth investors considering if their portfolios are currently overly exposed to China should a major financial crash occur.
A portfolio that holds companies with highly leveraged balance sheets such as the banks, resource companies and the small-cap sector are obvious areas likely to suffer from a Chinese debt disaster. Conversely, domestically-focused defensive stocks would be likely to fare relatively better in the face of a significant Chinese financial shock, which would have repercussions around the world.
Firms that stand-out for their domestic exposure and defensive revenue and earnings bases include Telstra Corporation Ltd (ASX: TLS), Woolworths Limited (ASX: WOW) and Primary Health Care Limited (ASX: PRY).
Foolish takeaway
While predictions of doom should be met with scepticism, Soros' understanding of financial markets should not be underestimated. Likewise investors who focus first and foremost on capital preservation are likely to build themselves a rock-solid portfolio that can withstand the inevitable headwinds when they present themselves.
