As Chinese markets are affected, what options do investors have?

People cross the bridge showing the latest economic and stock market data at the Liuizhui Financial Center in Shanghai (China) on January 16, 2024 (EFE)

Chinese foreign investors are losing more every day, Some are more worried about sour relationships China With Western governments. Other people are worried about it Unprecedented decline in the country’s real estate market, Many people are tired of losing money. On January 22, the CSI 300 index of Chinese shares fell 1.6%; It is now down about a quarter from the level a year ago. Meanwhile, the index Hong Kong’s Hang Seng fell 2.3% on the day, and is down by more than a third from its level in early 2023. Rumors that authorities are considering measures to stabilize the market have provided some relief. but about optimism China Inc. It is an increasingly distant memory.

Just five years ago, investors were struggling to see past the country’s growth miracle and trying to diversify from rich world markets that often move in tandem. The providers of the world’s most important stock indices – FTSE and MSCI – adjusted accordingly. Between 2018 and 2020, listed Chinese stocks, known as A-shares, were added to the emerging markets benchmark index,

At its peak in 2020, Chinese companies accounted for more than 40% of the index’s value. In 2022, foreigners owned $1.2 trillion in stocks, or between 5% and 10% of the total. China continental and hong kong, An investment manager describes overcoming the challenge of investing in emerging markets. China How to avoid investing in developed markets usa, How will investors do this? And where will your money flow?

Some investment companies are willing to help. Jupiter Property Management, putnam investments And Vontobel Actively managed “ex-China” fund launching in 2023. An emerging markets exchange-traded fund, without ChinaIssuer black Rock It is now the fifth-largest emerging markets equity exchange-traded fund, with $8.7 billion of assets under management, up from $5.7 billion in July.

A handful of major emerging stock markets are gaining. money has been put into India, South Korea And taiwanWhose shares represent more than 60% of the aggregate, excluding emerging market securities China, These markets received approximately $16 billion in the last three months of 2023, If you look carefully, this is what the countries look like China: a rapidly growing middle-income country with the potential for huge growth in consumption (India) and two containing advanced Asian industries (taiwan And South Korea,

Western investors looking to invest in Chinese industrial stocks are also moving towards it. Japan, encouraged by his corporate governance reforms. Last year, foreign investors poured 3 trillion yen ($20 billion) into Japanese equity funds, the most in a decade. For those with a broader mandate, different asset classes are an option. Asia-focused funds that invest in real assets, including infrastructure, are becoming increasingly popular,

However, these options have their drawbacks. Indian stocks are expensive, unlike China’s cheap offerings, Its price/earnings ratio is higher than other large emerging markets. Although Japanese stocks look relatively cheap, they are a strange choice for investors looking for fast income growth. Similarly, the work of taiwan And South Korea They are included among emerging markets because of the liquidity and accessibility of their stock markets, but both economies are mature, high-income economies.

Size is also a problem. Shifting supply chains out benefits many places China They have weak public markets. Despite rapid growth, the total capitalization of the Indian market is only $4 trillion, not even a third of that hong kong, shanghai And Shenzhen Together. When MSCI Published its Emerging Markets Index in 1988, malaysia Represented one third of its values. Now the country’s representation is less than 2%. brazil, chili And Mexico Together they represented another third; Today they represent less than 10%.

And while Chinese investment returns follow their own logic, smaller economies are more sensitive to the uncertainties of the dollar and US interest rates. According to a study by UBS Asset ManagementChinese stocks had a correlation of 0.56 with rich world stocks between December 2008 and July 2023 (a score of one indicates stocks rise and fall together; zero means no correlation). On the other hand, except emerging market securities ChinaThe correlation with those in the rich world was 0.84.

The emergence and development of funds that are committed to exclusion China They will make life easier for investors who want to avoid the world’s second largest stock exchange. If there is no change in the economic condition of the country, or there is no sustained reduction in tensions between Beijing And Washington, interest in these strategies will increase. However, they will not generate the kind of excitement that investors once felt China,

© 2024, The Economist Newspaper Limited. All rights reserved.

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