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What institutional investors need to know

November 30, 2020

Investors should consider greater allocations to China to benefit from the long-term opportunities the country presents and help to manage their overall risk

Chinese capital markets have continued to become more accessible to global investors.

Rather than representing setbacks, US-China tensions and de-globalisation are signs that the world is morphing into a new world order.

Allocation to China in a new world order

Building exposure to China is best viewed as a journey that balances the pace of market improvements with the imperative to achieve structural geographical diversity in a global portfolio.

Using a scenario learning framework, we suggest that over the next 10 years global investors should consider whether to substantially increase their allocation to China, from the current level of 5% to potentially around 20%.

Download our paper Allocations to China in a new world order to learn more

The merits of a stand alone equity allocation to China

A standalone equity allocation to China offers compelling diversification and excess return benefits for those with the ability to take advantage of this exciting opportunity set. In recent times many institutions have looked to access China via global or emerging market (EM) strategies. However, this approach will likely dilute the alpha potential and is not our preferred route.

China equity market is the world’s second largest by market capitalization, offering substantial breadth and depth in terms of the variety of listed companies and sector exposures, and it offers good liquidity. Despite this scale and breadth, China is underrepresented in most global investment portfolios.

Download our paper The merits of a stand alone equity allocation to China to learn more.

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