China Stock Slump Sparks Emerging Markets Ex-China Shift
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China's stock market has seen a dramatic deterioration in sentiment, with indexes down 40-60% from 2021 peaks. However, this has not prevented gains in developed and emerging markets excluding China.
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There is a sense among foreign investors that China's weighting in emerging market indexes is too large, while other economies like India, South Korea and Taiwan are more appealing.
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Assets in emerging market ex-China ETFs exceeded those in China ETFs for the first time in 2022, reflecting a shift away from China.
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However, reducing exposure to China is easier said than done given supply chain interdependencies and China's economic importance. An "ex-China" strategy still has substantial China exposure.
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The emerging market ex-China trade presents its own risks and valuations are becoming less appealing. Fund managers cannot easily abandon engagement with China.