Investment Idea – China and emerging markets

A dramatic unveiling of economic stimulus measures designed to boost economic growth announced by the Chinese government in recent weeks should be a sign for investors to reconsider their exposure to China and other emerging markets.

The short-term impact of these new measures has resulted in a roller coaster ride for investors in China. An explosive rise in the market at the end of September has been followed by a series of dips and subsequent bounces. This kind of movement – where prices rise and fall rapidly – can be common following major announcements.

Change can create opportunities. Despite slowing down recently, China remains one of the fastest-growing economies in the world. The Chinese market is vast, with thousands of listed companies, including some of the world’s largest, most innovative, and fastest growing businesses.

For investors, this means there could be exciting opportunities – but also some risks. For those interested in international markets, this might be a good time to take a closer look at China and other emerging markets, but it’s important to do so with a clear plan and understanding of the risks involved.

An emerging market is one of a developing nation with a fast-growing economy.

China is often overlooked by tech-focused investors

Since 2022, a lot of investor focus has been on a few big tech companies in the U.S. Meanwhile, investing in China has been seen as riskier, and some investors may have decided to avoid it altogether.

However, for investors looking to diversify beyond large positions in the U.S., China could offer new long-term opportunities. Despite its challenges, China is home to world-leading companies across key industries like consumer electronics, wind turbines, and electric vehicles – industries that are likely to be essential in the future.

Developments in China may benefit stock performance

One big change is that the Chinese government is encouraging businesses to be more “shareholder-friendly.” This means they’re aiming to deliver higher profits and to share more of those profits with investors when it is sensible to do so. Some companies have already responded by paying higher dividends (a portion of profits paid out to shareholders) and buying back shares. This is where a company buys back its own shares which can increase the value of remaining shares in circulation.

While nothing is guaranteed, these changes could make investing in China more appealing for those looking to balance their portfolios across different markets, as the government is encouraging businesses to be more shareholder friendly.

Investing in emerging markets – an ongoing evolution

A growing theme within emerging markets is the increasing representation of countries outside of China within the major indices. This has been driven by recent weakness in the Chinese market, coupled with the strong performance of markets as diverse as India, Brazil, and Taiwan, which has a growing technology industry.

China is a vast and complex market to try to understand, and there are still many potential paths for the government to take in terms of how it supports the economy. However, Asia as a whole, which is the largest region in emerging markets, is still a popular choice for long-term investors looking to diversify.

Emerging markets in this region, from India to Indonesia have large and growing populations, more people joining the middle class, and a rising demand for new products and services on which people and businesses could spend their money. This story underpins opportunities in tech, consumer brands and more as companies look to grow and even expand globally.

How to invest in China and emerging markets

Investing in the wide array of countries and industries that span emerging markets can be challenging, so it’s worth considering an “active” investing approach.

This means choosing a fund managed by experts who select specific companies likely to succeed and grow in their home economies. Furthermore, emerging markets are diverse, with many languages spoken and less information available on some companies, so fund managers can help identify the companies best positioned for growth.

Alternatively, investors could choose a “tracker fund,” which simply follows a broad emerging markets stock market index without focusing on specific companies.

We offer a wide range of emerging markets funds, and you’ll find a number of these selected for our funds list of Active funds, Tracker funds or our Barclays Multi-Manager funds.

Worth considering for a long-term investor’s portfolio

Choosing an Emerging Market Equity fund, such as the Barclays GlobalAccess Emerging Market Equity Fund represents an opportunity to increase a portfolio’s exposure to China and some of the other fastest evolving economies in the world. At the same time, relying on the investment skills of a number of different managers expert in this area of the market. You can find more details on our Multi-Manager Funds List.

It’s worth remembering that investing in emerging markets is considered higher risk because of factors such as currency volatility, political uncertainty and unregulated markets.

However, as part of a globally diversified portfolio, and with a long-term investment horizon required to tolerate the inevitable volatility that comes with investing in emerging markets, an allocation to this often-overlooked asset class is worth consideration.