Emerging Markets: Honing a China Allocation

The U.S. stock market has done so well that many investors may have forgotten about the rest of the world. Emerging markets, however, have a case to get back into investors’ portfolios. VettaFi’s recent Equity Symposium included a conversation on emerging markets with KraneShares’ CIO Brendan Ahern and Columbia Threadneedle’s Head of Strategic Beta Sales Jay McAndrew on the topic.

See more: This China Equities ETF Is Defying the Odds

Hosted by VettaFi’s Vice Chairman Tom Lydon, the discussion focused on finding the right allocation to EM’s biggest country, China, and how to play the rest of emerging markets, too. The country, due to its size, looms over the foreign investing landscape. Media headlines in the U.S. tend to misattribute tepid China returns to domestic politics alone, Ahern explained.

“Since the global financial crisis, the S&P 500 is up 924%, and MSCI China is only up 130%,” he noted.

“What do our minds say? ‘Well, that’s because China is a communist country,’” Ahern added. “But the problem with that rationale is that MSCI Latin America’s only up 139%. Are they all communists? Are they all dictatorships?”

The real issue, he explained, comes from the sector concentration on which emerging markets focus. Sectors like financials, energy, and industrials have lagged behind tech and growth in the U.S.