When it comes to emerging markets (EM) exposure, investors familiar with the space know exactly how important China is in the EM mix. China’s importance to EM is akin to a star player to a sports team or a steam engine that pulls the rest of the EM economies.
“Thanks in part to such strong recent performance, China has now become as important to the emerging markets as the U.S. is to developed markets, if not even more,” a PA Turkey article noted. “China has come to represent nearly 50% of the S&P Emerging BMI by weight—with China’s weight helped by the broader A-shares universe, which was included in the benchmark in 2019 at a partial inclusion factor of 25%.”
While China was the epicenter of the Covid-19 pandemic, it’s slowly regaining its footing and is also developing a healthy hubris in the process. The country has ambitious hopes to supplant the U.S. as the world’s top economy sooner rather than later–that, of course, remains to be seen.
“The path for China in 2020 and beyond remains uncertain,” the article added. “But what is clear is that a view on emerging markets requires careful consideration of the allocation made to—and the prospects for—Chinese stocks. You can learn more about S&P DJI’s range of global equity benchmarks here.”
For broad exposure to emerging markets, ETF investors can take a look at the FlexShares Morningstar Emerging Markets Factor Tilt Index Fund (TLTE). The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MorningstarÂ® Emerging Markets Factor Tilt IndexSM.
The index is designed to reflect the performance of a selection of companies that, in aggregate, possess greater exposure to size and value factors relative to the Morningstar Emerging Markets Index, a float-adjusted market-capitalization weighted index of companies incorporated in emerging-market countries. The fund will invest at least 80% of its total assets in the securities of the index and in ADRs and GDRs based on the securities in the index.
Another fund is the FlexShares Emerging Markets Quality Low Volatility Index Fund (QLVE). QLVE seeks investment results that correspond generally to the price and yield performance of the Northern Trust Emerging Markets Quality Low Volatility IndexSM, which is designed to reflect the performance of a selection of companies that, in aggregate, possess lower overall absolute volatility characteristics relative to a broad universe of securities domiciled in emerging market countries.
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