HomeBusinessHow can I invest in Asia but avoid China?

How can I invest in Asia but avoid China?

I have long held the view that investing in emerging markets and in particular Asia will pay off over the long term and hold some funds and trusts that have so far delivered good performance.

I am becoming increasingly concerned about investing in China though, both from a risk perspective – due to the increased interference with private enterprise – and also for ethical considerations, as I feel China is becoming increasingly authoritarian and I am worried about human rights.

I would like to continue investing in Asian markets through active funds and investment trusts but would like to find some that have lesser or minimal exposure to China. Are there any that do this?

Alleged human rights abuses and increased regulation in China have pushed some investors to limit their exposure to Chinese companies  

Angharad Carrick, of This Is Money, says: More investors may be contemplating reducing their exposure to China, whether it be because of regulation, geopolitics or human rights abuses like you mention. 

China has the lion’s share of the emerging market index currently. It has doubled its share of the MSCI emerging market index over the past five years. 

This index captures large and mid cap representation across 25 emerging countries.   

Goldman Sachs predicts it could rise further to well above 40 per cent over the next five years.

There have been some moves to separate China from emerging market funds because of its sheer size, but it has not established itself like the Asia ex-Japan sector.

Fidelity China Special Situations fund manager Dale Nichols said in October 2019 he thought that China would become so dominant in Asia that instead of Asia ex-Japan we would see the emergence of Asia ex-China.

There are already some passive trackers like iShares MSCI Emerging Markets Ex China ETF and Lyxor MSCI Emerging Markets Ex China UCITS ETF, which exclude China.

Our experts look at some of the active funds and trusts with little to no exposure to China.

Carly Moorhouse, fund research analyst at Quilter Cheviot replies: ‘The vast majority of the regulations have been imposed in order to safeguard customers and ensure that there is a level playing field so that no one or two companies can be overly dominant.

‘And while yes, this will have a big impact on companies like Alibaba and Tencent, many would argue that this is simply an evolution towards a more robust and ‘developed market’ type business environment.

‘While some of the behemoths may be negatively impacted, it will open the door for many smaller, less established businesses to come to the market, creating even more opportunities for investors.

‘The main difference between China and many other countries is the speed in which regulations can be introduced… 

‘This can lead to elevated volatility that you do not see as often in developed markets as changing regulations tend to be more drawn-out and communicated well before any changes come to realisation, particularly in the West.

‘So while we have seen some big changes in the Chinese market in the last 12-18 months, I would argue that these are not wholly unreasonable nor detrimental to China’s investment case. 

‘On the contrary, I believe it will foster a much more attractive environment for both businesses and consumers in the long term, once the short-term noise has subsided.

‘On funds and trusts have lesser or minimal exposure to China, the ones that immediately spring to mind are the Stewart Investors funds. 

‘The Stewart Investors Asia Pacific Leaders has 8 per cent exposure to China. This is a similar level to that of the Pacific Assets Trust, which is run by the same team but has some slightly different exposures, mainly with regards to market cap, due to the closed-ended structure.’

Darius McDermott, managing director at Chelsea Financial Services replies: ‘You can find some generalist Asian equity funds that are currently underweight China (Jupiter Asian Income has just 1.8 per cent invested in Chinese equities, for example), but this allocation could change if the managers find more opportunities in the country.

‘Another alternative would be to invest in an ASEAN fund (although again there may be a little exposure to China) and then maybe add a country specific fund like one investing in Indian Equities. 

‘There is Fidelity ASEAN, FSSA ASEAN AII Cap and JPM ASEAN Equity, for example and, when it comes to India we like Alquity Subcontinent and Goldman Sachs India Equity Portfolio.’

Angharad Carrick adds: You may find it difficult to find a fund investing in Asia that has zero exposure to China, so you may want to look at global emerging markets away from the region.

You could opt for a Latin American equity fund, like ASI Latin American Equity, which has returned 8.41 per cent over the past three months. 

Over five years, however, it has significantly underperformed the sector average delivering -6.29 per cent compared to the IA Global Emerging Markets sector which returned 44.6 per cent.

Blackrock Frontiers Investment Trust could be an alternative, with exposure to Latin America, the Middle East and parts of Africa, with no exposure to China.

Carla Moorhouse adds: ‘There are allegations of human rights abuses in China… I would argue that this is where active investment is key. 

‘It is imperative that you invest with portfolio managers who will be good stewards of your capital and who will emphasise really understanding the individual nuances of each company that they are investing in to ensure that they are not involved in abuses of human rights. 

‘I believe that this is something that is not specific just to investing in China.

‘While human rights violations are more prevalent in emerging markets, it can happen anywhere. 

‘It is the job of a good fund selector to assess a portfolio manager’s ability to successfully avoid companies that are poorly governed and/or engaging in untoward practices and behaviours.’

Compare the best DIY investing platforms and stocks & shares Isa

Investing online is simple, cheap and can be done from your computer, tablet or phone at a time and place that suits you.

When it comes to choosing a DIY investing platform, stocks & shares Isa or a general investing account, the range of options might seem overwhelming. 

Every provider has a slightly different offering, charging more or less for trading or holding shares and giving access to a different range of stocks, funds and investment trusts. 

When weighing up the right one for you, it’s important to to look at the service that it offers, along with administration charges and dealing fees, plus any other extra costs.

To help you compare investment accounts, we’ve crunched the facts and pulled together a comprehensive guide to choosing the best and cheapest investing account for you. 

We highlight the main players in the table below but would advise doing your own research and considering the points in our full guide linked here.

>> This is Money’s full guide to the best investing platforms and Isas 

Admin charge Charges notes Fund dealing Standard share, trust, ETF dealing Regular investing Dividend reinvestment
AJ Bell YouInvest 0.25%  Max £3.50 per month for shares, trusts, ETFs.  £1.50 £9.95 £1.50 1% (Min £1.50, max £9.95)  More details
Bestinvest 0.40% or 0.2% Account fee cut to 0.2% for ready made investments Free £4.95 n/a n/a More details
Charles Stanley Direct 0.35%  No platform fee on shares if a trade in that month and annual max of £240 Free £11.50 n/a n/a More details
Fidelity 0.35% on funds £45 fee up to £7,500. Max £45 per year for shares,  trusts,  ETFs Free £10 Free funds £1.50 shares, trusts ETFs £1.50 More details
Hargreaves Lansdown 0.45% Capped at £45 for shares, trusts, ETFs Free £11.95 £1.50 1% (£1 min, £10 max) More details
Interactive Investor  £119.88 as £9.99 per month £7.99 per month back in trading credit £7.99 £7.99 Free £0.99 More details
iWeb £100 one-off £5 £5 n/a 2%, max £5 More details
Freetrade Free for standard account £3 month for Isa  Freetrade Plus with more investments is £9.99/month inc. Isa fee No funds  Free  n/a  n/a  More details 
Vanguard  0.15%   
Only Vanguard funds
Free  Free only Vanguard ETFs  Free  n/a  More details 
(Source: ThisisMoney.co.uk July 2021. Admin charges quoted annually, may be monthly or quarterly)


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