China’s Struggles Shouldn’t Slow the S&P 500. Some Companies Look Riskier.

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While only 5% of the aggregate revenue for companies in the benchmark comes from China,, the risk is higher for those with the biggest weightings.

China’s sluggish postpandemic economic recovery isn’t likely to hurt the S&P 500, but that doesn’t mean investors should shrug it off. The devil is in the details.

If all China revenue disappeared, S&P 500 earnings would fall by about 7%, he estimated, in a painful but not catastrophic worst-case scenario. A 5% decline in China revenue would lead to just a 0.3% earnings-per-share decline for the index, while S&P 500 EPS would fall by about 3.4% if half of all China revenue were taken away, Chronert said.

While only 5% of the S&P 500’s revenue is tied to China, the risk is higher for companies with the biggest weightings in the index, such as Apple , Microsoft , Nvidia , Amazon.com , Alphabet , Tesla , and Meta Platforms . “The ‘Big 7’ derive more than 10% of their revenue from China, so although the fundamental risk at the index is relatively small in scope, there may be pockets of risk, volatility, and dispersion in the event of a more material slowdown in China,” he said.

A third category of businesses are even more at risk. U.S. companies that get 30% or more of their revenue from China include Las Vegas Sands , Aptiv , Estée Lauder , Lam ResearchCorp , Western DigitalCorp , and Micron Technology .

 

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