Lyxor first to exclude China from emerging markets ETF

Asian nation set to follow in the footsteps of Japan and the US for asset allocation


Lyxor has unveiled the first emerging markets ETF to exclude China for European investors as the Asian nation increasingly ranks alongside Japan and the US as an asset allocation sector in its own right.

Lyxor MSCI Emerging Markets Ex China Ucits ETF provides exposure to 25 emerging equity markets, including the largest markets after China, such as Brazil, South Korea and India. It has a 0.30% fee and is synthetically replicated.

It has been listed in USD on the London Stock Exchange and in euros on the Deutsche Boerse.

Shaking up access to Asia

Lyxor many European investors find it hard to manage their allocation to Asia within broad emerging markets funds.

Tilney managing director Jason Hollands said the ETF creates more avenues for portfolio managers to access China via an Asian equity product, single country fund or to avoid the country altogether.

“In my view it is useful to have such a strategy available within an investment tool box, though we have a preference for full rather than synthetic replication.”

Lyxor already offers  MSCI China ETF in Europe, also with a fee of 0.30%.

China will become like the US and Japan for asset allocation

Ex-China products will eventually become the norm, said Adrian Lowcock, head of personal investing at Willis Owen. “As China’s weighting in the EM indices grows, they will become increasingly dominated by China and therefore a funds relative exposure to the country will be the main influence for the performance.

“We have already seen this happening to some extent in recent years. Having funds which give exposure to assets classes excluding a certain countries is not new and the China one is probably the current trend.”

Lyxor said given China’s size, high population and ongoing market liberalisation, it believes the country should play a bigger role in portfolios, and that it should now be considered as a separate, standalone allocation.

Lowcock added: “China is the world’s second largest economy so as it opens up its stock market to foreign investors, it will also be a major asset allocation sector in its own right – just as Japan or the US is.”

China is forecast to contribute 28% of global GDP growth in 2019–2020, according the IMF outlook from April.

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