China's economy is following a path that is quite distinct from other emerging markets. Understanding the risk/return characteristics that define that path is key to thinking through the inclusion of Chinese assets in an institutional portfolio, including the consideration of a dedicated allocation to China.
Weighing Opportunities as the Market Opens
Three concerns are shaping our view on EM equities as we head into the final quarter of 2021. First, China growth concerns are increasing as the global economic recovery peaks; a slowdown in China could create additional headwinds for emerging markets. Second, new downside risks to growth in China have emerged, including regulatory risks, and it is increasingly important to understand which sectors and companies will win in the long term as the government pursues key policy goals. Lastly, monetary policy normalization, especially quantitative easing (QE) tapering, is likely to create a liquidity-withdrawal headwind for EM; it should not, however, result in the same degree of downside for EM assets as the 2013 “taper tantrum.”
As quantitative investors, we focus on keeping a balance between the various elements that drive markets. In early 2021, China consumer stock prices and EPS estimates began to diverge.
The returns on a portfolio of securities which exclude companies that do not meet the portfolio's specified ESG criteria may trail the returns on a portfolio of securities which include such companies. A portfolio's ESG criteria may result in the portfolio investing in industry sectors or securities which underperform the market as a whole.
Responsible-Factor (R Factor) scoring is designed by State Street to reflect certain ESG characteristics and does not represent investment performance. Results generated out of the scoring model is based on sustainability and corporate governance dimensions of a scored entity.
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Expiry date 11/30/2022