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 .