How to Think About What's Going on With Chinese Stocks; How to Make Smart Donations – The Motley Fool

Returns as of 03/19/2022
Returns as of 03/19/2022
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The Security and Exchange Commission (SEC) is threatening to delist the American depositary receipts of several Chinese companies. Investors have a lot of questions. In this podcast, Motley Fool senior analyst Bill Mann discusses:
And he discusses how the NCAA basketball tournament can help make your approach to investing better and why hoops programs with a history of winning records resemble winning businesses.
Jennifer Gennaro Oxley, executive director of The Motley Fool Foundation, talks with Motley Fool host Alison Southwick and MotleyFool personal finance expert Robert Brokamp about how thinking like an investor can lead to better outcomes in your charitable giving.
To catch full episodes of all The Motley Fool’s free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on March 15, 2022.
Chris Hill: Why are shares of Chinese companies falling so much? How can the NCAA basketball tournament help you invest better? To March Madness, Motley Fool Money style. I’m Chris Hill, joined by Motley Fool Senior Analyst, Bill Mann. Thanks for being here.
Bill Mann: Hey Chris, how are you?
Chris Hill: The market’s up at this moment, so everything is great.
Bill Mann: Everything is fixed. It’s over.
Chris Hill: Everything’s fixed. You’re welcome, everybody.
Bill Mann: Yeah.
Chris Hill: Let me start with an email that we got from a longtime listener and a Motley Fool member, Tom Jones in Davis, California. He writes, I hold a small position in Yum China, with a symbol YUMC. Reports indicate this stock might be delisted for not complying with US tax rules. What does this mean for US stockholders? Great question. I’ll just start by adding, it’s not just Yum China. Last week the SEC identified several US-listed ADRs of Chinese companies. The SEC claims are not adhering to the Holding Foreign Companies Accountable Act, which says that if American regulators are not able to review company audits for three years in a row, the SEC can end those stocks from being traded. They can delist them. Tom’s issue is also the issue of many other investors, and there are ripple effects from this that we can get into in a second. But just in terms of this issue, am I correct in assuming that this is an issue that is only going to grow? By that I mean, the SEC has identified, I believe it’s five companies. One of them is Yum China, and it’s five right now.
Bill Mann: It’s all of them.
Chris Hill: It’s all of them. This is the beginning.
Bill Mann: It’s five companies right now, but in actuality it’s all of them. There is an American regulatory authority called the PCAOB. The PCAOB is the authority in the US that really judges the accountants. In Chinese law, their accountancies cannot be held to the standards of any other country. No Chinese accountancy is by law supposed to open their processes to the PCAOB. This is what you would describe as an impulse. The problem is, and why I don’t know that this is going to get solved is that the United States, in the interest of protecting American shareholders, which is what this is, is actually doing the same exact thing that the Chinese government wants. The Chinese government wants the Chinese companies to be listed in Hong Kong, in China, not in the US. They would rather their listings be there. I don’t know what the solution is. I do know that this is a problem where neither of the primary combatants have much in the way of an incentive of fixing it, other than the American regulators know that this is bad for American shareholders. We’ve seen it in the prices of a lot of Chinese companies shares dropping substantially over the last week.
Chris Hill: I was going to say in the past couple of days we’ve seen Wall Street firms downgrade bigger companies, better-known companies, Alibaba, JD.com, Baidu, all three of these stocks down around 25 percent over the last few days. I’m still wrapping my head around your comment that this is what the Chinese government wants. If this is what the Chinese government wants, and this is what the United States government has said they’re going to do, then why would anyone buy shares of a Chinese company at this point in time?
Bill Mann: The J.P. Morgan, I believe yesterday, called the Chinese market essentially uninvestable.
Chris Hill: Do you agree?
Bill Mann: In our services, we greatly reduced our exposure to China over the ones that I run in the last year really at least partially for this very issue. I think that going out of your way to gain exposure to China is probably a mistake. That does not mean that all Chinese companies are zero. It doesn’t mean that all Chinese companies are in the same boat. But you’re dealing with an outlook and fight and we are mice that situation. Simple.
Chris Hill: Thank you for that visual. That’s a very clear visual because I was going to say, I can imagine some investors talking themselves into like, hey, look, I’m just taking one percent of my portfolio because if this does get resolved, then presumably the 25 percent of Baidu, JD.com, and Alibaba that disappeared in the last few days magically reappears.
Bill Mann: That’s not the worst theory in the world. There is a lot of money to be made when there is a doomsday trade on the table and you’re like, OK, all that needs to happen is not the worst thing. That is a very valid way to invest, but you better know what you are stepping into before you do it. Like the odds are, it seems at this point that even if these companies don’t end up getting delisted, that the rhetoric around this is going to get worse, that the situation is going to get worse. Maybe it resolves itself. In that case, yes, you will have one and one big because Alibaba, the company is not going anywhere and neither are any of these really large companies. But the question is, what outlet are you going to have if they get delisted from the US?
Chris Hill: But just to close on this topic. Let me backup. I’m sure there are people who, when this news broke last week about the SEC thought to themselves, well, now that this has happened, now that the SEC has moved this chess piece, some if not all of these companies that are based in China, will resign themselves to, OK, we’re going to open our books because we don’t want to be delisted. It sounds like you’re saying, that may happen, but that’s ain’t the way to bet.
Bill Mann: Yeah. They can’t unless they want to break Chinese law, which I can guarantee you is more important to them than American Securities Law.
Chris Hill: What should we be watching for in terms of this? Because after this conversation, and this is the first time that you and I today have talked about this today. I’m learning this along with our listeners. I’m wondering if the next domino to fall is next week or the week after the SEC comes out with a list of five more companies?
Bill Mann: Yeah, possibly. I think the thing really to keep in mind and this has been, I don’t want to say this in a way like, well, what about my needs? But this has really been hard for me to gather because my entire adult life has been all about global powers coming closer together or being more interconnected. What we’re talking about here, and it’s not lost on me that this is being done with the backdrop of a really horrible situation in Ukraine. What we’re talking about here is a decoupling of two of the largest economic powers in the world. Not that the stock market is the biggest way that they are linked, but it is a definitive way where the US and the Chinese governments do have at this point a shared interest. It wouldn’t surprise me if there is an outcome that’s not the worst. But I don’t see it right now.
Chris Hill: Let’s move to a happier topic because I think you and I are in agreement that the NCAA basketball tournament is one of, if not the best sporting event in the US that happens every year, and so many people, so many of our listeners this week are focused on the tournament, picking their brackets. I want to run an investing analogy by you because it’s fun to pick upsets when you’re filling out your bracket, it’s fun to look at a numbers 13 seat displaying a number 4 seat and you pick that upset. Depending on the bracket you’re involved in, sometimes you’ve rewarded for more points, and therefore more dollars if you pick earlier around upsets. But it’s fun and sexy as upset picks can be. We talk all the time about, if you want to just have a great first step as an investor, the index fund is the way to go. If you want to try and beat the market’s average return, you invest in individual stocks. For me, I think making the NCAA tournament is the college basketball equivalent of beating the market because most schools don’t make the tournament field.
Bill Mann: We haven’t talked about this beforehand, so while you’re talking about this, my mind is racing like who is what? The S&P 500index fund, that’s the 4 number one seats. I mean, those are the ones that you expect to win. Probably, you’re not talking about if we’re gambling here. You’re not talking about. Allegedly, exactly. You’re not talking about enormous potential gains, but what are the proxies to like Amazon? Amazon, the bet that people were making in 1999, while that’s going to be something like VCU in 2011 that went from the first four as an 11 seed and made it to the final four, or butler that same year. Gross stocks are those lower seeds and you have to expect a huge amount of volatility in those returns. Most of these are not going to make it, but the ones that do, those are the ones that are going to make people a mint in money. PS, don’t gamble.
Chris Hill: Yes, there are better ways.
Bill Mann: Sorry, PS, the stock market is very different than degenerate gambling.
Chris Hill: Absolutely. See, I was going in a slightly different direction. I was thinking, if making the tournament is beating the market, go back to the beginning of the season and just think in terms of like, because that would be another interesting exercise to just at the start of the season say, « Hey, let’s not wait for the bracket to come out in March. Let’s make our picks right now. » Who do we think is going to make the tournament? Maybe you get rewarded more points and therefore more dollars allegedly for gambling. Allegedly, for the upset that the South Dakota State University of Richmond picks, but what is the safer blue-chip way? It’s the perk. It’s the David Gardner line, winners keep winning. If we go back to the beginning of the season and say, « Who do you think is going to make the tournament this year? » I know this is boring, but it’s probably going to be Kansas, Arizona. Villanova.
Bill Mann: [inaudible 00:12:35] going to be there.
Chris Hill: North Carolina, Kentucky. You want those in your portfolio? But you want to have a little spice with the great upside potential. That’s where you throw in the South Dakota states of the world.
Bill Mann: I love the fact that we’re actually laying the line down for the new Motley Fool service, which is just literally sports betting like this is.
Chris Hill: Thankfully, nobody’s listening to us talk right now.
Bill Mann: Full disclosure, that’s not really coming.
Chris Hill: Bill Mann. Illuminating and fun to talk to you as always. Thanks for being here.
Bill Mann: Thanks, Chris.
Chris Hill: Often when we see a crisis, the instinct to want to help kicks in. But the best of charitable intentions don’t always lead to great results. Robert Brokamp and Alison Southwick discussed how thinking like an investor can be a benefit for anyone looking to support non-profits in Ukraine.
Alison Southwick: When you see such a tragedy like what is happening in Ukraine, you might feel compelled to help immediately. You may want to donate money, clothes, time, food, anything. If you’ve been moved by the images on the news and you want to help in some way, Jennifer Gennaro Oxley, Head of The Motley Fool Foundation, joins us to talk about best practices for vetting non-profits and making sure your donations are put to work effectively. Jennifer, thanks for joining us.
Jennifer Gennaro Oxley: Happy to be here, Alison.
Alison Southwick: One thing that’s been really fascinating in the last few years is just how really creative we’re getting when it comes to supporting worthy causes these days like, yes, you can still write a check to your favorite non-profit, but now you have way more options and this was very evident in Ukraine. For example, people who have spent an estimated two million dollars booking Airbnbs in Ukraine, they never plan to stay in them just so the Airbnb owners have money coming in. The government of Ukraine asked people on Twitter to donate cryptocurrency. According to the crypto watchdog, Elliptic, more than 100,000 people did exactly that. They donated nearly 60 million in crypto directly to the Ukrainian government. Then of course there’s crowdfunding. I have a friend in Germany who is like, « I’m feeling my van with supplies and I’m driving to the Polish border. You can donate to my GoFundMe. » I mean, the art of giving has really evolved. Hasn’t it, Jennifer?
Jennifer Gennaro Oxley: It really has in big and small ways. Good Morning America covered a story the other day about Polish moms that were leaving their strollers at the border for Ukrainian moms, put their children in as they move forward because they knew they didn’t have any equipment and had to leave really quickly. It’s been really encouraging to see the different formats that are used, the level and the scale, but also just the things that have come from people’s hearts that they know they need now, especially in the Ukraine.
Alison Southwick: It is amazing how much you can see people come together and support one another, even across the ocean, across the world. I mean, let’s get a sense here of how much we do give here in the US. According to Giving USA foundation’s annual report on philanthropy, charitable giving in this country reached a record $471 billion in 2020. Where is all that money going? Well, there are about 1.5 million charities and non-profits in the US alone, and not all non-profits are effectively equal or equally effective. Even if they have the best of intentions, they might not be the best stewards of your donations.
Jennifer Gennaro Oxley: Yeah, but I think that the important thing to remember is to react with intention, but do your research. So contributing to a non-profit in the wake of a disaster or conflict it’s powerful. It makes you feel like you’re taking action now, but you need to take a few minutes to ensure that the organization you plan to support is reputable and has a clear response effort that ensures the intention is right. Charity Navigator recommends donating to online fundraisers created by individuals with one degree of separation, unless the fundraiser was created by a registered non-profit. There are a lot of tricks that we’ll talk about to make sure that we’re moving money into the right places with the right intentions as we go through this, Alison, but really just react with intentions and do your research.
Alison Southwick: With so many creative options for giving, what is the most effective way to give? Because logistics are fraud. In the Ukraine, particularly it’s a war zone. We have humanitarian crisis. Is money the best answer here? Or is money usually the best answer?
Jennifer Gennaro Oxley: It’s a really good question. Money to the right place at the right time is the best answer. More often than not. There are other times where volunteerism is the right answer, but in many of the situations, COVID is an example, the Ukraine, money to the right place at the right time is the best answer. I recently read an article on Vox that said that hosting countries who are taking in millions of refugees can absorb much more in donations than they’re getting right now. Think about those organizations, organizations like the Polish Humanitarian Action, the Polish Center for International Aid, the Ukrainian Red Cross. These are just some of the organizations that can absorb much more donations. Even your local non-profits, wherever they are, in the US or overseas. They can take more than you think and if you’re worried about it, just give them a call and ask how they take donations and how they process and steward your donations.
Alison Southwick: Even beyond this immediate moment of helping in Ukraine, how do you vet a charity for effectiveness to make sure that your money is going to go far?
Jennifer Gennaro Oxley: There are some tricks of the trade that are very important. First of all, the answer is research. When you’re in an action mode, sometimes you don’t want to take the time to do that. You’re thinking, I just got to help someone now, and to make sure that people are getting the funds that you contribute to them, as we always think, is the end-user actually getting the funds? Are they being helped? The answer is research. Here’s a few tips. Do check how watchdogs like Charity Navigator, CharityWatch, Better Business Bureau’s Wise Giving Alliance, Rate and Organization, before you make a donation. Look to international donor-advised funds or vetting organizations like global giving. There are rating organizations. Charity Navigator, they’re largely US has a fair number of international nonprofits and social enterprises and charities, donor-advised funds. One of their job is to vet the charity before they actually recommend that your funds go there. The FTC recommends searching for a charity’s name or cause you want to support like the Ukraine, like homeless children with terms such as highly rated charity complaints and scam.
I’ve done this often myself and in recommending things to the Fool, really done some online research with the name of the charity attached with some of those other words you’d be surprised what you find. Do ask how much your donation goes to overhead and fund-raising. One rule of thumb used by the Wise Giving Alliance is that at least 65 percent of a charity’s total expenses should go directly to serving its mission. Remember, there’s a caveat to that but that is a guiding principle. If an organization is new and it’s a start-up, you may find less going to the actual people they serve at first because they are ramping up operations. Just know that if it’s an established nonprofit, at least 65 percent of the charity’s total expenses should go directly to serving the mission. Then the IRS maintains an online database where you can check whether an organization is a registered charity or registered nonprofit.
Alison Southwick: Unfortunately, whenever there’s a high-profile humanitarian crisis or disaster, it’s also a fantastic opportunity for scammers and fraud. The FTC, FBI, and others are warning against scams, they are taking advantage of people who want to donate and help out in Ukraine. What are some common cons that people should look out for and how should they protect themselves?
Jennifer Gennaro Oxley: You have to balance your head and your heart. In other words, manage your emotions a little bit similar to investing. Normally you’re passionate about something, you want to do something, it’s great, and/or there’s a real need and you want to be involved, that’s wonderful. Take that on the side a bit because sometimes that can cloud your ability to be objective about the organization you’re actually giving to or the cost. The other thing is follow your gut. If you see an organization promising to much or feels too good to be true, that may be the case. Remember when it comes to causes, there’s usually more than one nonprofit that’s servicing a certain cost. Don’t get stuck in one group. Second is the things about the organization and tactics that could be warning signs. Pressure to give right now, a legitimate charity will welcome your donation whenever you choose to make it. That said, there are things like our tragedy that’s happening over in the Ukraine where time is of the essence. That said, they shouldn’t be pressuring you so much to give today. Give now. A thank you for your donation, you don’t recall making. I don’t know about you, Alison but I think I remember who I donated to five years ago, but I might not. If you end up getting a thank-you note from an organization you don’t recall making that could typically be a warning sign. A request for payment by cash or gift card. Really, nonprofit shouldn’t be asking you to do that. They will ask you at times to give by a wire transfer, especially with international donations. But if you think about a nonprofit that asks you for a wire transfer, they’re pressuring you to give right now, at the same time, maybe you should look at that as a warning sign.
Alison Southwick: I think another common one is that a con artist might also be spoofing legitimate charities. You might get an email and it’ll say it’s from the Red Cross or something. But then if you look at the email address, it’s actually from Red Cross with three s’s .org, for example.
Jennifer Gennaro Oxley: Or redcross.net.
Alison Southwick: Or redcross.net, for example. I think it’s also important if you get a solicitation, go into Google and find your own way back to that organization’s website so that you’re not finding a trail because they will even make whole fake websites that try to spoof a legit charity.
Jennifer Gennaro Oxley: Absolutely.
Alison Southwick: It’s very tricky. All right, bro, I’m going to look to you for some guidance here because as giving gets more created. It’s less clear what this means for your taxes. I don’t think anyone is seeing images of Ukraine and giving purely for the tax right-off. But depending how and where people give come tax time, they might get a little confused. For example, are donations to charities outside the US tax-deductible.
Robert Brokamp: Yeah. The truth is, it’s actually more difficult these days to get a tax break from your charitable contributions. Because first, generally you have to itemize. Since the standard deduction is so high now, only about 10 percent of taxpayers itemize. For 2022, the standard deduction is a tad below $13,000 for individuals twice that for married couples who filed jointly. Of course, if your total itemized deductions are close to those figures, and then you give a generous charitable donation, it pushes you over, then you actually could benefit from itemizing. As part of the legislation passed in the wake of the pandemic panic taxpayers actually were allowed to deduct up to $300 in cash contributions per person even if they didn’t itemize in 2020 and 2021. Unfortunately, that so far hasn’t been extended to 2022. If you are among the 10 percent who itemize then you can deduct contributions to qualifying organizations. These are generally known as 501C3 organizations, so named after a section of the IRS tax code. As Jennifer said, the IRS does provide a search tool that allows you to look up whether an organization qualifies.
When you go to that list, you’ll find many global charities, but not many that focus on just one country outside the US. For example, if you donate to an organization headquartered in Ukraine, chances are that it won’t be tax-deductible, but you can check to make sure. Also just buying something from a company that says we’ll share some of the profits, booking Airbnb, contributing to an individual’s GoFundMe page, those types of things generally aren’t tax-deductible. Finally, there is one way to donate money and get a tax break without itemizing, and that’s a qualified charitable distribution. This is only available to folks who are 70.5 or older. Basically allows you to transfer up to $100,000 a year directly from your traditional IRA to charity. It does indeed have to be a direct transfer. You can take the money out of your account and then send them a check, you don’t get a deduction. But the withdrawal is not considered a taxable distribution plus it can count toward your required minimum distribution if you have to take one. If that sounds intriguing to you make sure you follow the rules because there are some really a follow-up to make this quality as QCP.
Chris Hill: That’s all for today, but coming up tomorrow, we’ve got a deep dive on a $120 billion software business. As always, people on the program may have interest in the stocks they talked about. The Motley Fool may have formal recommendations for or against, so don’t buy yourself stocks based solely on what you hear. I’m Chris Hill, thanks for listening. We’ll see you tomorrow.
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