Investing Ideas
Where Chinese equities go, emerging-market stocks will follow
A potential outperformance for China’s equity market in the quarters ahead could reward investors who overweight emerging-market stocks.
Key Takeaways
- For emerging-market investors, Chinese equities play an instrumental role in driving overall performance of the MSCI Emerging Markets Index, representing over 25% of the index as of February 2024.
- Chinese stocks have been a notable drag on emerging-market equity returns in recent years. The unwinding of a property bubble, increasingly unfriendly investor policies, and rising trade tensions with the West have damped sentiment.
- Chinese stocks have slumped over 50% from their peak in early 2021. Current valuations reflect negative sentiment, reaching levels that are historically associated with troughs. Against this backdrop, policymakers are taking steps to stimulate demand and economic activity.
- We believe China has become a Fulcrum Issue for investors and the risk/reward opportunities for owning Chinese equities, and emerging-market equities more broadly, is attractive on a cyclical basis.
- In our view, investors with an intermediate time frame could be rewarded for holding an overweight exposure to emerging-market equities.
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Where Chinese equities go, emerging-market stocks will follow
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