Be underweight 'less business-friendly' Chinese stocks: Strategist

As the S&P 500 (^GSPC) reaches all-time highs, many investors are looking for places to maximize their portfolio. As the Chinese government takes serious measures to improve their economy, some investors may think its a smart play.

John Hancock Investment Management Co-Chief Investment Strategist Emily Roland joins Yahoo Finance to discuss why investors may want to think twice before moving into foreign investments in Chinese markets.

Roland lays out why she has been avoiding Chinese markets: "We've been minimizing or exposure to China and emerging markets for a number of reasons. There's continued challenges with their property sector being over-levered. There's a way move away from capitalism as there's more control over many companies in China, which is less business-friendly. So we've actually been taking that underweight to emerging market equities, and taking that into the United States, particularly by allocating to mid-cap stocks, which are benefiting from some of tosee supply chains in China actually coming back to the United States. That's been an underweight for us broadly."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Nicholas Jacobino

Video Transcript

- And Emily, I'd love to get your thoughts on China as well. I don't know if you heard, I was talking about that with Julie as we started off the show. And it's been hard to, Emily, find a common narrative during this earnings season. It really does vary widely depending on the company, the sector, the industry. I'd love to get your thoughts on China. Do you want exposure there?

EMILY ROLAND: Yeah. We've been minimizing our exposure to China in emerging markets for a number of reasons. There's continued challenges with their property sector being overlevered. There's a kind of move away from capitalism as there's more control over many companies in China, which is less business friendly. So we've actually been taking that underweight to emerging market equities and taking that into the United States, particularly by allocating to mid-cap stocks, which are benefiting from some of those supply chains in China actually coming back to the United States.

So that's been an underweight for us broadly. You know, in terms of other earnings themes, you guys nailed it earlier talking about some of the cost cutting and restructuring generally, in general that's happening. And what we're seeing is pretty typical dynamics for a late cycle environment, where revenue growth is normalizing, it was explosive during the height of the pandemic as we pumped $5 trillion of stimulus into the economy, and companies are now contending with a higher cost of capital as the Fed raised rates.

So margins are starting to compress, so something we've been waiting for a while to happen. And if you're a company that wants to maintain profitability, and your margins are shrinking, and you can't raise prices anymore, you have to cut costs. And that's the way that a lot of these companies are really generating their profitability and beating those earnings estimates. So I think another notable trend that's playing out.