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China is a ‘huge piece of the global economy’: Analyst

Dana D’Auria, Envestnet PMC Co-CIO joins the Yahoo Finance Live panel with the latest market action.

Video Transcript

ZACK GUZMAN: I want to shift over, though, to the broader market and bring on our next guest and, particularly, kind of digging into the fact that we've seen a pretty solid slate of newer highs here, not today as the market pulls back just slightly to see the S&P 500 off by about a quarter of 1%. But what could maybe that break from all-time highs and closing days for the S&P 500 could-- what could it be signaling?

For more on that, I want to bring on Dana D'Auria, Envestnet PMC co-CIO joins us right now. And Dana, good to be chatting with you again. I mean, your notes are kind of walking through how many highs we've hit here on the year so far and likening it back to other, I guess, bouts of volatility. But talk to me about what today's action might be signaling about maybe a leveling out of a break from those all-time highs.

DANA D'AURIA: Yeah, thanks for having me. You know, certainly, we can't expect to hit [AUDIO OUT] it seemed like that lately. Chatter about a 5% correction definitely increasing of late. And I don't think anybody should be surprised if that happens. I certainly don't think, too, when you consider what's going on in Washington right now and the policy that's being debated and what's going to happen over the course of September, the potential tax increases, what's happening with the debt ceiling, it's really kind of interesting, I think, more that markets keep hitting these highs, and that we're not seeing more in the way of pullbacks.

AKIKO FUJITA: So does that mean you're a little skeptical of that pullback when we talk about the chatter that's out there? And if you, in fact, think that there is going to be some kind of correction, how do you think investors should be positioning themselves? We had a guest on earlier who said it is still about value over growth. Where do you stand on that debate?

DANA D'AURIA: Yeah, I definitely tend toward a value bias. Just generally speaking, I think valuations are-- you know, I look at academic evidence on how to approach markets. And valuations are one of the few indicators that really have efficacy. But it's mid-term efficacy, right? It's not what's going to happen tomorrow. It's how to position myself over the course of a longer strategic-- you know, a cycle, right? So, certainly a tilt toward value, I think, is still in works, right? It's something that you should be looking at doing.

As far as what's happening right now, I just think September being crowded with a number of policy considerations, tax hikes that could knock on the order of 6% off of S&P earnings growth next year, these things are ultimately going to be priced in. I don't think they're priced in yet from the economic evidence that we see. So at what point does that finally start happening. I think, of course, you're going to see a correction at that stage of the game.

ZACK GUZMAN: Yeah, and that's, I guess, kind of the problem there, is, you know, you had all these models factoring in continued growth in this recovery and now coming off of it, a noted consumer weakness there, is a lot to factor in. But I guess, maybe some of that might be focused here on the US. Your notes make a point of emphasis to look at emerging markets and how maybe the balance there has been shifting more so towards Asian countries. Talk to me about the opportunity you see there in EMs right now.

DANA D'AURIA: Yeah, so of course, the discussion on emerging markets right now is all about China. That's where the focus is. And we get some very different opinions on whether you should be very concerned about what the Chinese government is doing and the continued crackdown, or this is a buying opportunity and you should kind of go into China heavy.

Certainly, if you're in emerging markets from a strategic asset allocation perspective, you probably have a pretty heavy weight to China within that index. And even without China, it's shifted a lot more to tech than it had in the past. So that's something to be aware of. But I think if you're negotiating how do you approach emerging and how do you approach China within emerging, you might need to think about maybe a cap. We might want to think about how much you have pointed towards China now and ongoing, right?

AKIKO FUJITA: I mean, particularly on China tech, the argument has always been despite concerns about regulation, any government action, the growth story remains intact, that there is, long-term, a higher return. Do you think that case has come increasingly into question on the back of the most recent action we've seen taken by regulators over in the country?

DANA D'AURIA: I do, and I do think there are plenty of people who are taking a step back and saying, whoa, you know, maybe the protections as an investor that I'm accustomed to in the US that I sort of took on faith I could expect in other nations that are not necessarily the case. On the other hand, I do think, as I said, there's going to be a group of active managers and investors who are going to see this as a potential buying opportunity and who are seeing it that way.

And we also, we're starting to see now a lot of the policy filter in, so we're getting a sense of where this is going to come out. So certainly, investors are now pricing that in as well. My overall on this is that you don't want to leave China. China is a huge piece of the global economy. You just need to watch what is my weight to China, am I well diversified, am I hedging my bets, so to speak.

AKIKO FUJITA: Yeah, diversification always key in so many cases, certainly no exception with China, too. Dana D'Auria, Envestnet PMC co-CIO, it's good to talk to you today. Really appreciate--