Insights

What to Know About an EM Ex-China Allocation

As China’s dominance in EM benchmarks grows, investors are exploring EM ex-China strategies to manage concentration risks, enhance diversification, and gain flexibility in portfolio construction.

24 June 2025

Ben Goldberg, CFA

Client Portfolio Manager - Systematic Equity

Chris Carpentier, CFA, FRM

Senior Investment Strategist

At the beginning of 2024, institutional investor allocations to emerging markets equity strategies were over $1.5 Trillion in AUM,¹ underscoring that a large number of global market participants may be seeking to understand their implicit exposure to China — especially given China’s political sensitivities with international governments; youth unemployment; weakening exports; and slowing economic growth that has prompted easing from the People’s Bank of China.

Investors’ concerns are not misguided; China continues to play a commanding role in emerging markets (EM) benchmarks (Figures 1 and 2). China’s nearly 25% weight in the MSCI EM Index is almost 25% higher that of the next-largest country weight as well as that of the EM EMEA and EM Latin America regions combined.²

Client interest in managing China risks by separating China from a broader EM allocation cuts across various client types and has been top of mind for institutional clients with a wide range of goals and preferences. In this piece, we explore the implications of a standalone China plus EM Ex China allocation. Our aim is to educate clients on the potential impacts of these strategies to their broader portfolios.

Concentration Considerations

While an EM Ex China allocation removes China’s country weight, it is worth considering how the remaining weights are impacted, and how the sector and country concentrations in EM Ex China may differ from the full EM index.

Figure 3 shows how the country weights may play out in an EM Ex China portfolio. The combined weight of Taiwan, India, and Korea significantly increases from 50% in EM to 65% when looking at EM ex China. Despite the removal of China, Asia remains the highest regional exposure at over 70% of the index.

Footnotes

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