Allocation to China in a new world order

Over recent years, there have been increasing concerns about setbacks in globalisation and rising trade/geopolitical tensions between the US and China. These events were perceived to be negative for China’s economic prospects and led to elevated market volatility. We are aware that some investors have viewed these developments as reasons not to allocate to China.

In this paper, we argue that the case for long-term investors to increase allocations to China remains strong and has not been undermined by recent developments. Indeed, we postulate that rather than representing setbacks, US-China tensions and de-globalisation are signs that the world is morphing into a new world order.

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%. The opening up and reforms of Chinese capital markets are expected to continue apace over the coming decade. This should allow global investors to become more knowledgeable and more comfortable when it comes to owning Chinese assets.

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.

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