AAs issues in China continue to worry emerging market investors, one can consider an exchange-traded fund strategy that allows access to developing economies without exposure to the volatility of Chinese equities.
In the latest round of market turmoil from China, US dollar bonds from property developer Evergrande Group failed to provide interest payments by Thursday’s deadline. Evergrande was expected to make $ 83.5 million in coupon payments by September 23 on dollar bonds with a face value of $ 2.03 billion, the the Wall Street newspaper reports.
The company has a 30-day grace period before bondholders call a default on the debt. A missed payment would make it the biggest default on a dollar bond ever by a business in Asia.
Chinese authorities have already warned local governments to prepare for the potential economic and social effects of the Evergrande fallout, signaling Beijing’s reluctance to bail out the property developer. However, observers do not expect the Chinese government to allow the company to trigger a messy tangle that would create widespread problems.
“This is a controlled and managed default that has not surprised authorities or investors,” Thu Ha Chow, senior credit strategist and portfolio manager at Loomis Sayles, told the WSJ. “This is not a ‘Lehman moment’, but the market will be watching for any unintended consequences that may result.”
Investors who are reluctant to gain exposure to China but are still interested in the growth of emerging Asian economies may look to other ETF strategies. For example, the recent launch ETF Asian Growth Cubs (CUBS) is the first active thematic ETF to focus on public equities from emerging and frontier growth markets.
CUBS provides investors with actively managed exposure to five major, fast growing markets: Bangladesh, Indonesia, Pakistan, Philippines and Vietnam. These five economies have individually grown their GDP faster than 6% per year in USD since 2000. In addition, Bangladesh and Vietnam have worsened GDP for 40 consecutive years, including 2020. Yet these markets remain inaccessible to most. foreign investors due to little or no ETF Coverage or US deposit slip listings.
Dawn Global believes that active investment management is needed to identify the most attractive growth companies in these less covered markets and to mitigate corporate and governance risks. The investment process involves top-down selection of companies and bottom-up analysis of companies to identify the most attractive investment opportunities. The ETF’s high conviction portfolio is reviewed quarterly and rebalanced twice a year with equal weighting across all securities to mitigate single country and single company risk. The portfolio is oriented towards the economy of tomorrow, with a preference for healthcare, telecom media technology, consumer goods and financial services.
In addition, the fund provider takes an environmental, social and governance investment approach when selecting holdings.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.