Approaching Investing in China

Executive Summary

• Despite regulation in 2021 that negatively surprised as well as a multi-year period of COVID-19-related restrictions that just ended, in our view China represents a compelling investment opportunity.
• China can be treated as a separate portfolio allocation:
• China’s economy and financial markets are now on par with major developed markets (DMs) but are still in emerging markets (EM) indices, in which China represents a substantial and growing portion of the asset class.
• As a result, EM performance metrics are often driven by China and equity indices can under-represent the rest of the EM asset class.
• We understand why an increasing number of investors choose to invest  in China on a standalone basis, which enables them to focus on emerging markets through EM ex-China allocations.

Is China investible?

In 2021, a series of unexpected regulatory actions caused many market observers and participants to question whether investors can confidently and predictably invest in China’s markets. We believe China remains a key investment market for several reasons.

China’s economy is too large to avoid. China accounted for 18.4% of global GDP in 2021 (in USD terms)¹and we expect that share to continue rising. Further, World Bank data indicates that China accounts for 13.0% of global equity market capitalisation. China’s share of the global economy and capital markets suggests that excluding it from portfolios risk incurring missed opportunities.