So can (and should) you avoid the world’s second largest economy? Some experts think that’s exactly what investors should be doing.
“You can’t always factor in the risk of a government coming in overnight and saying to a company ‘you can’t really make a profit,'” she said.
Tolle told CNN Business that investors should be more concerned about capital flowing out of the country due to worries about Beijing exerting more control over companies in mainland China.
Emerging markets funds doing better without China exposure
Tolle isn’t the only one screening out China from emerging markets funds. Big fund companies such as iShares and Columbia Threadneedle also have emerging market ETFs that leave Chinese companies out of their holdings.
The funds have outperformed broader emerging markets funds this year, too, showing that investing for social good can be profitable.
“We like the longer-term view, but in the near- term, we’re more cautious,” said Jeff Mortimer, director of investment strategy at BNY Mellon Wealth Management. “Some other emerging markets have better growth potential.”
“The move from promoting more entrepreneurship to an equal growth sharing of the pie changes the equation,” he added. “We took some money off the table and reduced our exposure to China.”
“The investor perception of risk has risen in China, and it has risen with cause,” said Paul Espinosa, portfolio manager with Seafarer Capital Partners.
Espinosa also said China isn’t as attractive as other emerging markets simply because stocks outside of the country are better bargains.
Companies in Brazil and others parts of Latin America are more compelling values than Chinese-based firms, Espinosa said. He’s also looking at investment opportunities in the Middle East.
“Everyone is so focused on China, and it is dominated by growth investors,” he said. “But there are more opportunities outside of China.”
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