Bulls have turned to bears extremely rapidly on the outlook for China, but we thought we would have a peek at our databases to see what the allocators we cover think.

Our most recent pulse check on allocator mood, conducted in December, reveals the largely ambivalent mood in the camp. 

60 per cent of those surveyed said they were neutral on the region, 35 per cent were positive, and just 5 per cent were negative. 

That being said, one of the longer running trends in our allocations database is that DFMs have been slashing their exposure to ex-Japan Asian equity funds, as we covered back in November. 

At the start of 2023 the average allocation was above 5 per cent but it now sits just below 4 per cent.

This is a trend we are seeing across all types of portfolio: in ESG portfolios the average Asia allocation was above 4 per cent in mid-2022 and it is now 2.5 per cent while in income portfolios this has gone down from 4.5 per cent to 3.3 per cent over the same time period.

But within that we sought to find out the precedence to China within the five most popular Asian equity funds on the database. 

On average, China comprises 27 per cent of each fund, with Federated Hermes ex-Japan the largest with 43.5 per cent and Schroder Asian Income the lowest at 9.8 per cent, though another one-tenth is given to Chinese bonds, which is a topic for another day. 

For a bit of context, Schroder Asian Income is owned by nine of the allocators we cover and Federated Hermes is owned by seven, showing the diversity of approach that’s on offer across the continent. 

This is roughly in line with the MSCI Asia ex-Japan index allocation of 27 per cent parked there. 

It is noteworthy that some of the most popular Asian funds have trimmed their China exposure since we last looked at this but others have nudged their allocation up.

Invesco’s Ben Gutteridge was one of those to express ambivalence about the nation in a note to Asset Allocator. 

“Given the combination of market valuation appeal, the prospects for a weaker dollar (over time), as well as bursts of Chinese policy support, there are reasons for optimism toward the asset class,” he said. “Despite this, we must also take into account the more troubling policy agenda when considering MPS portfolio exposure.” 

Invesco picked up Schroder Asian Income during the fourth quarter of 2023 - a fund with one of the lowest exposures to China. Not only them, but Abrdn informed us that they’ve reduced their quality growth recently and added more value via the same fund, too.