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We've written about both successful EM funds with low China exposure (2021) and funds that, by prospectus, exclude China (2023).Mobius, founder of Mobius Capital Partners, has been a longtime booster of Chinese equities, yet revealed why he’d changed his mind ...
The investor revealed that he had funds trapped in an account with HSBC in Shanghai. “I can’t get my money out. The government is restricting the flow of money out of the country,” he said.
Mobius continued that the Chinese government was “putting all kinds of barriers” in his way. “They don’t say, ‘No, you can’t get your money out,’ but they say, ‘Give us all the records from 20 years of how you’ve made this money,’ and so forth. It’s crazy.”
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It is hard to screen for % China in most fund screeners, including MFO. M* premium screener lumps China into "other", although with a specific fund you can see % China.
MFO will let you screen for funds with China as a top five holding but not exclude China or any other country.
Can we put that into the suggestion box for an update?
https://www.bloomberg.com/news/articles/2023-03-06/missing-banker-reignites-fears-of-xi-in-china-s-tech-startups-venture-capital?srnd=premium&sref=OzMbRRMQ
In the latest sign of trouble, Bao Fan, the tech industry’s star banker, disappeared, with his firm issuing a terse statement that he is cooperating in an unspecified investigation. The eerie vanishing may have more influence on the psyche of China’s corporate class than any encouraging words from state media.
“It’s rule by fear: There is a feeling that Beijing can always come after you,” says Alicia Garcia Herrero, chief Asia Pacific economist at Natixis. “Of course, the private sector will be much more cautious.”
Mark Mobius story was all over Twitter over the weekend. Since then, there have been some denials of any new changes by the HSBC and Chinese state agencies. It is clear that something ticked off Mark Mobius greatly.
I know this in the Indian context - there are repatriable and non-repatriable accounts. If one mixes money up, then as they say, "good luck with that".
Unless one restricted themselves to developed market, some active managed funds still have smaller %.
Reading David’s comments above is troubling - Mark Mobius is having difficulty divesting his money out.
At the start of 2022, I started my position in EM fund RNWOX, the Rondure New World fund. This fund, I believe, has been neck and neck with SFGIX for risk adjusted returns. In fact, if you put their trends on top of each other, there is little difference in return and volatility. At the time I was looking for an EM fund, the manager, Laura Geritz, spoke more positively about increasing positions in India more than China. China was about 20% of the fund when I bought, lower than the avg EM fund. Now, China has increased to about 27% as @sma3 states. I assume the change is based on stock value given this fund has a value tilt.
I still think this is one of the better EM funds to own, low risk, above avg returns, a 5* fund. I don't plan any changes. I think if China starts to renege on financial obligations, they will destroy their own economy and disrupt all markets. So, I don't plan any changes... yet.
https://www.nbcnews.com/news/world/conflict-china-us-inevitable-new-foreign-minister-warns-rcna73705
They are clearly upping the anti. Some predict Xi will invade Taiwan next year while US is preoccupied by election. He must be very encouraged to hear the right wing of the GOP try to stiff Ukraine.
If this does happen, it will not just be Chinese funds that will crater; all risk assets will crash. TSM will be wiped out, as all of their factories will be rubble.
Somehow I doubt that would make INTC shoot upward. The implications for the world economy would be very very negative; far worse than Covid and far far worse than Ukaine. After an invasion, what other country, especially in Asia, would ever want to do business with China again?
These global implications are why I think it is unlikely China will invade, but they are likely to do almost everything else they think they can get away with. Canceling US ADRs and refusing to allow US funds to be re-patriated would be easy.
For all it's remarkable growth, China is still heavily indebted and needs large investments and a humming economy to keep people working and not rioting because their family finances are falling apart
Feeling better, Derf
https://freedometfs.com/frdm/
Here’s what I came up with for FRDM (top 10 countries by investment)
Taiwan 22.14%
Chile 18.87%
South Korea 18.12%
Poland 13.40%
South Africa 5.89%
Brazil 5.54%
Malaysia 4.92%
Indonesia 4.88%
Mexico 3.46%
Philippines 2.31%
Source
For comparison, the same source lists 27% of DODEX invested in China - which I understand is a source of consternation for many. I’d say it depends on the size and role of an EM fund in your portfolio. My EM exposure is very small - a “long-shot” consisting of 1-2% of total holdings. So if my EM fund held 27% China, it wouldn’t constitute a very large commitment.
Great topic. Thanks for all the insights.
While many people eschew using "moral values" in investments, as everyone has different ethical values, there is a case to make that many moral issues have legitimate and well founded investment implications.
In China's case, the recent destruction of Hong Kong democracy and what little dissent there was in the Communist party are immoral and contrary to US democratic ideals.
They are also contrary to solid "rule of law" principles that capitalism requires. If a company or owner can loose all of the profits and assets of a company because of the whim of one man, there is little reason to commit capital to that country.
I don't see how the Communist party control over markets and capital flows will be beneficial for China in even the short run.
”South Africa failed to take meaningful measures to improve protection of social and economic rights, which has been undermined by widespread unemployment, inequality, poverty, the government’s response to the Covid-19 pandemic, and corruption. The authorities struggled to ensure law enforcement responded effectively to some of the worst riots and looting in the country since the end of apartheid. The violent riots triggered by the imprisonment of former President Jacob Zuma for contempt of court claimed more than 330 lives … Other human rights concerns include violence against women, failure to ensure justice and accountability for past xenophobic violence, and violence against environmental activists.
The government’s Covid-19 aid programs, including food parcels during national lockdown, overlooked people with disabilities, refugees and asylum seekers, and many lesbian, gay, bisexual, and transgender (LGBT) people. Among countries that collect gender-based violence (GBV) statistics, South Africa has one of the highest rates of GBV in the world.
The killing of environmental rights activist, Mama Fikile Ntshangase, in her house in KwaZulu-Natal province, on October 22, 2020, highlighted the plight of rights defenders in mining-affected communities across the country. Activists have experienced threats, physical attacks, and damage to their property because of their activism—which police failed to investigate”
Source
To Lewis's point that "free countries" aren't necessarily free countries, yep. The world is complex and confounding. The Freedom 100 ETF relies on a third party who created an algorithm that incorporates 80 quantifiable metrics related to personal and economic freedom. I haven't examined the system (yet, might if we profile the fund but I'm still trying to figure out whether the manager is crazy or sane), but I could easily imagine that factors which aren't consistently quantifiable (Putin, e.g.) aren't accounted for. The questions might be (1) is the direction right - is freer, better? and (2) is the central tendency of the list right - are these countries, on whole and on average, meaningfully freer than most of their peers?
Back to grading.
China, given it's size and recent aggressiveness will probably have a greater impact on investment outcomes than South Africa for example.
On a side note, China has been studying the Ukraine war as what they can use to counter the West when they cross that path.
https://reuters.com/world/studying-ukraine-war-chinas-military-minds-fret-over-us-missiles-starlink-2023-03-08/
I have to admit that whenever I see the word "freedom" in the name of a product or an advertising campaign, I generally tune out as I immediately see it as marketing speak and a kind of soulless propaganda, exploiting our own fuzzy ambiguous definition and sentimental attachment to a word that should be sacred but isn't anymore.