While Greece has dominated the headlines this summer, more than one commentator has demoted Grexit to a “sideshow” to the main event – China’s stock market volatility and worries of a slowdown.
It makes perfect sense. Greece – and indeed Spain, Portugal, Italy or any other country you wish to include in a eurozone breakup – are small fry compared with what may or may not now sit as the biggest economy in the world.
And China’s troubles affect everyone, of course.
Concerns about the health of the economy were blamed as a key culprit in helping to wipe $40bn (£25.7bn) off the value of Apple in the US on one day in July, despite the company having reported an increase in global sales and profits.
With Chinese demand slowing, shares in mining and commodity firms have also fallen to their lowest levels since the global financial crisis of 2008.
Playing it safe
From a wider perspective, UK wealth managers have often sacrificed holdings in emerging market funds as they look to derisk their portfolios.
China is not the only Asian country to have experienced large stock market losses while, outside Asia, Brazil and Russia have their own well-documented problems.
As at May 2015, retail funds under management in the IA’s Global Emerging Markets sector stood at £15.8bn, down from £19.1bn two years previously, although considerably larger than the £9.6bn achieved in May 2010.
Funds under management in the Asia Pacific excluding Japan sector have remained fairly consistent at just under £30bn, suggesting investors are willing to be patient in sticking with investments across the continent, more so perhaps than in Latin America and emerging Europe.
“Emerging markets used to be quite a homogeneous area but now Brazil, Russia, India and China are all very much their own entities. Whereas once you could argue the trajectory was fairly similar, they are all now heading in different directions,” says Tim Cockerill, investment director at Rowan Dartington.
“For us to reinvest, valuations would have to be attractive and we would have to feel that China was starting to expand again rather than contract.
“However, we are seeing progress in India in terms of structural reforms,” he adds. “In Brazil, we would be looking for interest rates and inflation to come down and for the economy starting to grow again, while in Russia, arguably, they are going to have a recession this year and it has to re-join the global community. But I do not see that changing in the short term, so I expect our exposure to emerging markets to remain low.”
Movement afoot
This summer has heralded in a fair few changes in terms of the personnel running Asian and emerging markets funds.
