As China’s markets suffer, what alternatives do investors have?

livemint.com:

foreign investors in China are most worried by the country’s souring relations with the West. Others fret about the unprecedented slump in its property market. Many are simply tired of losing money.

Rumours that officials are considering steps to stabilise the country’s markets may have brought respite in recent days, but over the past year the CSI 300 index of Chinese shares has fallen by 22% and Hong Kong’s Hang Seng index by 30%. As such, optimism about China Inc is an increasingly distant memory. Just five years ago, though, investors clamoured for exposure to the country’s growth miracle and sought diversification from rich-world markets, which often move in sync.

Providers of the world’s big stock indices 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 more than 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 financier describes the challenge of investing in emerging markets while avoiding China as like investing in developed markets while avoiding America. But that is not stopping investors from assessing their options.

Some financial 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.