China is no longer just any emerging market — it has become its own beast

cnbc.com:

BEIJING — China is no longer just another emerging market play. Now, the country is becoming its own beast — with all the risks and rewards that come with being a world power.

There's greater caution on China this year, as stringent Covid controls drag on and as growth takes a backseat. Analysts note longer-term trends of China's reduced dependency on foreign investment and intellectual property.

That's all on top of Beijing's crackdown on the internet tech sector and real estate developers in the last two years.

Foreign investors are reacting. The share of Chinese stocks in the benchmark MSCI emerging markets index fell from a peak of 43.2% in October 2020 to 32% in July 2022, Morgan Stanley analysts pointed out.

In the meantime, exchange-traded funds tracking emerging markets — but not China — saw assets under management surge from $247 million at the end of 2020 to $2.85 billion as of July 2022, the report said.

WisdomTree last month became the latest firm to launch an emerging markets ex-China fund, following Goldman Sachs earlier in the year.

«We definitely hear clients [saying], maybe given the current political environment, maybe dial[ing] down China could be a better strategy,» said Liqian Ren, leader of quantitative investment at WisdomTree.

So far, she said, the number of clients excluding China isn't «overwhelming,» and by metrics such as per capita GDP the country remains an emerging market.

The category includes Brazil and South Korea and refers to economies with generally faster growth than developed economies such as the U.S. — and more risk.

But what Ren and others say is different for China now is that the U.S. has named it a strategic competitor. Most recently, the Biden administration further