Is it time to rethink China allocations?

COVID-19 may have strengthened the argument for a standalone China allocation

Jul 31, 2020

13 minutes

In recent years, we have written extensively about China allocations, arguing that Chinese assets lack the exposure across a typical portfolio that their size – and potential risk-adjusted returns – warrant. The coronavirus (COVID-19) pandemic has presented an opportunity to revisit this thesis and our findings reaffirm the conviction that a China allocation commensurate to its size and growth trajectory in today’s markets can deliver tangible benefits to investors.

China is undergoing a transformation through domestic reforms, which includes considerable investment in core infrastructure. Such re-building will help serve its ever-growing urban population, but also to alleviate poverty in the vast rural population. While near-term headwinds such as tensions with Hong Kong and the threats of US sanctions in an election year remain, it is key to view the investment potential of the country over a long-term horizon. The resilience of China’s equity and bond markets this year is a microcosm of this philosophy and strengthens the case to reconsider China allocations, particularly given their low correlations with other major asset classes.

In this new paper, ‘Is it Time to Rethink China Allocations?’ we take a look at China’s recovery, factors contributing to growth and assess short-term headwinds in an otherwise long-term story as investors consider efficient ways to apply risk in their portfolios while accessing the diversification and resilience China offers.

Read paper

Specific risks

Emerging market (inc. China): These markets carry a higher risk of financial loss than more developed markets as they may have less developed legal, political, economic or other systems.
All investments carry the risk of capital loss. The value of investments, and any income generated from them, can fall as well as rise and will be affected by changes in interest rates, currency fluctuations, general market conditions and other political, social and economic developments, as well as by specific matters relating to the assets in which the investment strategy invests. If any currency differs from the investor’s home currency, returns may increase or decrease as a result of currency fluctuations. Past performance is not a reliable indicator of future results.

Authored by

Sahil Mahtani

Strategist, Investment Institute

Wenchang Ma

Portfolio Manager

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