Chinese markets set for worst showing versus EM peers since 2004

The performance of the Chinese markets vis-à-vis its emerging market (EM) peers is on track for its worst showing since 2004. According to data compiled by Bloomberg, the MSCI China index has underperformed the MSCI EM (excluding China) index by 28 per cent so far this year. The regulatory crackdown against Chinese tech firms and the concerns around real estate firm Evergrande’s default has spooked investors investing in the Chinese markets this year. The underperformance comes after two years of outperformance. In 2020, China was the toast for global investors, outding most EM peers thanks to efficient control of the covid-19 pandemic, which made little dent to its economy. The performance of the Chinese market has a huge bearing on the EM pack as it has the largest country weight of about 32 per cent in the MSCI Emerging Markets Index. However, given the troubles facing China, many investors are looking to invest elsewhere in the region. Yet for all of China’s ongoing challenges, exposure to EM presents “meaningful diversification benefits” for a global multi-asset portfolio, Irene Goh, head of multi-asset solutions, Asia Pacific, with Aberdeen Standard Investments, wrote in a note. “Government measures appear sector-specific and fit a historic pattern of periodic tightening, rather than signaling the ‘end of capitalism’ as some investors have feared.” Market observers say the turmoil in Chinese equity markets has benefited India. Currently, India is the only region among the EM big four countries, where foreign funds have an overweight position.