Investors “forgot” that China is an emerging market
Investors have been warned against forgetting that China is still an emerging market and comes with associated risks, according to guests on the latest edition of the FTAdviser podcast.
Mark Williams, manager of Somerset Asia Income and Somerset Emerging Markets Dividend Growth funds, said market turmoil caused by the Evergrande liquidity crisis and broader regulatory crackdown should alert some investors.
Chinese stocks have lost 11% in the past three months amid concerns over the country’s ongoing regulatory crackdown. But these concerns have been exacerbated by the liquidity crisis facing real estate giant Evergrande. These two developments have combined and spilled over into world markets.
Williams said: âPerhaps the biggest lesson to be learned is that this is a wake-up call or a reminder that emerging markets are called emerging markets for a reason, and that China was an emerging market.
âWhat that means is that there are certain elements of risk within these markets, and I personally think that’s something people may have forgotten about. Especially with the huge weightings of some of the internet names, they just kept growing.
âCompanies like Tencent and Alibaba are fantastic companies, they are infinitely scalable, they create huge profits. There’s a reason for this, but ultimately they’re called emerging markets because there are risks inherent in them that you don’t have. not necessarily in developed markets.
âWe’re talking about what’s going on in Venezuela, maybe Argentina and Brazil on a political level, and maybe everyone is expecting it. I think when people looked at China, they weren’t there. ‘haven’t really seen it. “
Abhi Chatterjee, chief investment strategist at Dynamic Planner, pointed out that many emerging markets have high industry concentration, for example many technology companies.
He added: âEmerging markets are integral to the growth of the economy. We see them not only as sellers, but also as consumers contributing to growth.
“Corn […] people just bought the beta without doing any research. Emerging markets are called emerging markets because there is a reason for it. You need to do your due diligence and research and not just buy an ETF or an index and expect to reap the windfall profits.
“[Investing in emerging markets] should be done in a nuanced and investigative manner so that you are aware of the risks you are taking and are building a portfolio to take on all the risks and create a more diversified portfolio. “
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