Number of managers with global emerging markets ex-China strategies rises fifteenfold in six years

investmentweek.co.uk:

'The emergence of credible GEM ex-China strategies provides investors with a new way to approach emerging markets investing,' said Robert Doyle, senior director at bfinance.

With China facing «fundamental challenges», including difficulties in the property sector, high local government debt, a growing unemployment rate, a shrinking labour force and state interventions, bfinance explained GEM strategies can «complement a standalone China equity allocation», reduce or completely remove exposure to the country.

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In its report, bfinance said there are three themes investors should consider when it comes to GEM ex-China and China itself: taking into consideration headwinds/tailwinds to adjust allocations; keeping in mind the «weak correlation» between China and ex-China portfolios in support of separate allocations that might complement each other; and examining active ex-China strategies against active GEM strategies for alpha-generation potential.

bfinance added: «Overall, active EM ex-China strategies do have a smaller number of holdings than EM strategies, even though the remaining investable universe is large and liquid. The addition of a considerable number of ex-China positions is important to ensure appropriate diversification and sector exposures without the China names in place.

»Not all managers possess the research capabilities to do this effectively. As an aside, we also expect these strategies to show more of a tilt towards small- and mid-cap names as they build up appropriate exposures to desirable trends without Chinese stocks."

China also represents the largest country in the MSCI Emerging Markets index, at 30%, meaning investors can express