Robeco launches the Emerging Markets ex-China Equities fund

Robeco announced today the launch of its fund Emerging Markets ex-China Equities. Categorized as article 8 under the European SFDR regulation, it allows investors to calibrate their exposure to China separately.

Considering the significant size of the Chinese market, its current dominance in emerging market portfolios and specific factors such as geopolitics and regulatory policy that could affect profitability, Robeco has opted for this configuration to offer investors a more balanced exposure to the opportunity of EMs. The EM ex China strategy is based on Robeco's 30-year track record in fundamental EM investing.

The new active management strategy allows investors to exclude China from their allocation to emerging markets and achieve greater exposure to smaller, underrepresented emerging economies in the main index, such as Korea, Taiwan, and Brazil. It invests in over 1,100 companies, in high-growth sectors such as fintech and semiconductors. The fund consists of a diversified portfolio of between 60 and 80 stocks, selected with a preference for value, seeking attractive valuations with upside earnings potential. It offers a unique combination of fundamental and quantitative analysis for stock selection, with the aim of achieving superior returns to the index.

China's prominence in portfolios has been increasing over the years. In 2000, Chinese stocks only represented 5% of the index, which at that time was dominated by countries such as South Korea, South Africa, Brazil, Mexico, and Taiwan. But many things have changed since then. The Chinese economy has multiplied by 15, becoming the world's second-largest economy. In comparison, the South Korean economy almost tripled during the same period, while South Africa's and Taiwan's economies barely doubled.

As investor interest in China's extraordinary growth story has increased, so has the participation of Chinese equities in the MSCI EM index. At the market peak in 2020, Chinese stocks represented almost 40% of the index. Today, even after its recent decline, it accounts for approximately 25% of it by weight - one and a half times the proportion of Taiwanese stocks in the MSCI EM (17%), and almost double that of South Korean stocks (13%).

We are launching this fund to offer current and potential clients a more balanced exposure to the opportunity of emerging markets, given China's predominance in the emerging markets index. Given that emerging economies are growing faster than developed countries and that governments, companies, and households have stronger balances, we believe that rebalancing may have arrived late, as investors around the world are underexposed to emerging markets excluding China.

Wim-Hein Pals, Head of Emerging Markets Equity at Robeco