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Does China fit into an asset class of its own?

chinese_marketAt a recent emerging markets roundtable, panellists discussed whether China fits into an emerging markets portfolio or if it should be considered an asset class of its own.

Hitendra Varsani, executive director of index research at MSCI, highlighted that China’s current weight within the index provider’s emerging market (EM) index is around 40%, including the current 20% A-share inclusion. 

“If you exclude China, then the dynamics of EM would look very different given how country risk is very elevated in EM compared to DM [developed markets],” he said.

Meanwhile, Xiadong Bao, emerging market equity manager at Edmond de Rothschild Asset Management, said: “China is important to emerging markets, and it clearly understands that, but it’s too early to treat it as a separate asset class. Accessibility is improving but still remains an issue for some institutional investors.”

He added that the Chinese market is a profound one, pointing out how the 400 million-strong middle class has reached similar levels of wealth status and purchasing power as developed countries. But, he said, the rest of the population – around one billion – is still at an emerging market status of income.

Ramon Spano, fund of funds manager at Azimut Capital, argued that China is surrounded by US allies like Korea and Japan.

“Do you think China is going to be allowed to grow smoothly without any type of intervention from the US?” 

“China is going to become the number-one economy in GDP absolute terms. It is already the main leader amongst emerging countries: just look at the Silk Road, for example, or its influence in Africa now: it’s massive. How will this situation evolve? Is the US going to make it easy? I don’t think so,” he said. 

Meanwhile, Heinrich Slabber, partner at Holborn Assets, stated that China can operate on its own if it wants to – “but it accepts its responsibility so doesn’t do so anymore". 

He added: “It’s increasingly opening up, giving more opportunity for the capitalist global economy to contribute and extract from China’s growth. We can’t live without them. Sometimes we battle to live with them, but the fact of the matter is it’s our Big Brother and we are all one family and we have to accept that.”

Read the full emerging markets roundtable here: Emerging markets roundtable: An uneven recovery

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