China is the world’s second-largest equity market by market capitalisation. Asset allocators adopt different approaches to gaining or avoiding exposure to China. They range from including China as part of an emerging market equity mandate to treating it as a separate allocation, using China as a completion strategy, or excluding it entirely.
These varied approaches have spurred demand for EM ex-China strategies. According to eVestment, AUM in EM ex-China strategies and exchange-traded funds (ETFs) has grown from US$6.3 billion at the beginning of 2022 to over US$40 billion by end June 2025. The universe has grown at an annualised rate of 74%1 over the last six years, albeit from a low base.
An EM ex-China mandate allows investors to decide on their China exposure separately from the rest of their investments in emerging markets. This can be useful for those who are cautious about China’s outlook, concerned about concentration risk, or want the flexibility to manage their China exposure independently. In other words, an EM ex-China allocation can serve as a complementary building block within a broader allocation. China’s share of the MSCI Emerging Markets Index has been volatile – peaking at around 40% in 2020, dropping to a record low 23.7% at the end of 2024, and currently accounts for just under 30%2. Against this backdrop, the case for examining EM ex-China as a standalone opportunity set remains highly relevant.
Figure 1: EM ex-China universe flows since 2019
Source: eVestment as at 30 June 2025.
1. Source: eVestment, as at Q2 2025.
2. MSCI Emerging Market Index, as at 30 June 2025.
For further information on indices, please see the Important information section.
General risks. The value of investments, and any income generated from them, can fall as well as rise. Past performance is not a reliable indicator of future results. If any currency differs from the investor’s home currency, returns may increase or decrease as a result of currency fluctuations. Investment objectives and performance targets are subject to change and may not necessarily be achieved, losses may be made. Target returns are hypothetical returns and do not represent actual performance. Actual returns may differ significantly. Environmental, social or governance related risk events or factors, if they occur, could cause a negative impact on the value of investments.
Specific risks. Currency exchange: Changes in the relative values of different currencies may adversely affect the value of investments and any related income. Derivatives: The use of derivatives is not intended to increase the overall level of risk. However, the use of derivatives may still lead to large changes in value and includes the potential for large financial loss. A counterparty to a derivative transaction may fail to meet its obligations which may also lead to a financial loss. Equity investment: The value of equities (e.g. shares) and equity-related investments may vary according to company profits and future prospects as well as more general market factors. In the event of a company default (e.g. insolvency), the owners of their equity rank last in terms of any financial payment from that company. 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. Geographic/sector: Investments may be primarily concentrated in specific countries, geographical regions and/or industry sectors. This may mean that, in certain market conditions, the value of the portfolio may decrease whilst more broadly-invested portfolios might grow.
