As China’s markets plunge, what alternatives do investors have?
foreign investors. Some are most worried by China’s souring relations with Western governments. Others fret about the unprecedented slump in the country’s property market.
Many are simply tired of losing money. On January 22nd the CSI 300 index of Chinese shares dropped by 1.6%; it is now nearly a quarter below its level of a year ago. Meanwhile, Hong Kong’s Hang Seng index fell by 2.3% on the day, and is more than a third below its level at the start of 2023.
Heady optimism about China Inc. is an increasingly distant memory. Just five years ago investors clamoured for exposure to the country’s growth miracle and sought diversification from rich-world markets, which often move in lockstep.
Providers of the world’s most important stock indices—FTSE and MSCI—were making adjustments accordingly. Between 2018 and 2020 Chinese stocks listed onshore, known as A-shares, were added to the benchmark emerging-markets index. At their peak in 2020 Chinese firms made up over 40% of the MSCI emerging-market index by value.
In 2022 foreigners owned $1.2trn-worth of stocks, or 5-10% of the total, in mainland China and Hong Kong. One investment manager describes the challenge of investing in emerging markets while avoiding China as like investing in developed markets while avoiding America. So how will investors do it? And where will their money flow instead? Some investment firms are eager to help.
Jupiter Asset Management, Putnam Investments and Vontobel all launched actively managed “ex-China" funds in 2023. An emerging-market, ex-China, exchange-traded fund (ETF) issued by BlackRock is now the fifth-largest emerging-market equity ETF, with $8.7bn in assets under management, up from $5.7bn in July. A handful of large emerging stock
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