China is a very different pole. "U.S. media: International investment giants are betting on China

The widening economic gap between China and other emerging markets is prompting some of the world's biggest investors to change the way they allocate money to the asset class, US media say.

Calyon Asset Management, which has nearly $2 trillion under management, and Abn Amro, which has $190 billion under management, are both launching new china-focused strategies amid surging demand from clients who have invested in China through global developing-country funds, bloomberg news reported on Dec. 10. Bank of New York Mellon investment Management is backing targeted bets on the Chinese economy, while blackrock calls it "an investment destination distinct from emerging markets".

China has long stood out in the developing world for its unique combination of economic size, growth rate and market depth, the report said. But for many investors, these differences are not extreme enough to separate China from the broader emerging market portfolio. Thanks to China's rapid recovery from COVID-19 and an increasingly domestically driven growth model, this is changing and making the difference too big to ignore.

Asia's largest economy is likely to grow 8.2 percent in 2021, the IMF said, and the gap with other emerging economies this year is also the widest since 2009. China's benchmark stock index beat most of its rivals by 22 per cent in 2020, and the renminbi rose 6.7 per cent against the dollar, making it one of the best-performing developing currencies.

International investors have reportedly put a record amount of money into China's bond market. This year through October, they added $10.4 billion to greater China equity funds tracked by MORNINGstar inc. This led to outflows of $23.9bn from developing-country funds, the highest level since 2007.

"China is clearly different," Yeland Selzdkov, head of emerging markets at Calyon Asset Management in London, said in an interview.

China bulls argue that several structural trends could make China a unique part of a portfolio in the long run. One reason is that China has steadily removed barriers to foreign investment and implemented reforms that have allowed its domestic stocks and bonds to enter global benchmarks. Another is the continued diversification of the economy away from low-value-added manufacturing and infrastructure spending towards cutting-edge technology, services and domestic consumption.

"China has a very large and diverse economy that is different from other emerging markets -- very similar to the US economy in terms of the opportunities it offers," says Mr Selzdkov.

Fabiana Fedeli, the rotterdam-based firm's global head of basic equity, said more and more clients are separating their emerging markets strategy from their China strategy, a trend she expects to continue, the report said. As part of its effort to cater to that demand, Herbau launched a new Asian equity fund in March. China accounts for nearly half of the fund's weight.

In the current environment, it makes more sense for active investors to put their money in country-specific funds rather than global funds, says Lalai Akonel, senior market strategist at Bank of New York Mellon Investment Management in London. That means keeping an eye on China, but also on specific parts of emerging markets that are benefiting from China's economic recovery.

"Overall, we are much more optimistic about Asia," she said. In Asia, we are much more optimistic about some economies; "In addition to China, there are countries and regions that have strong relationships with resilient parts of the mainland economy, such as South Korea and Vietnam."

Blackrock inc., the world's largest asset manager, expects continued inflows into Asian assets as investors try to increase their exposure to the Chinese economy.

"We see China as the polar opposite of global growth," mike Pyle, global chief investment strategist at the blackrock Think tank, and his colleagues wrote in their 2021 Global Outlook. "There is clearly a case for having more China exposure in the portfolio to get returns and diversify."