By Patturaja Murugaboopathy
July 17 (Reuters) - Net assets of emerging market $(EM)$ equity funds that exclude China hit a record high in June, Morningstar data showed, as investors favored Latin America and Southeast Asia and took a more selective approach to the slowing Chinese economy.
According to the data, net assets of EM ex-China equity funds rose 15.2% in the first half of 2025 to a record high of $70.1 billion at the end of June.
The number of EM ex-China equity funds rose to 74 this year, four times as many as five years ago, the data showed.
Malcolm Dorson, senior portfolio manager at Global X ETFs, said investors were increasingly favouring EM ex-China strategies to get exposure to Southeast Asia and Latin America, while building separate China positions through sector-specific ETFs.
"Most investors are still hesitant around Chinese real estate and state-owned enterprises, and prefer a targeted and well-balanced approach."
According to LSEG Lipper data, global exchange-traded funds (ETFs) focused on emerging market equities attracted $18 billion in net inflows during the first half of 2025; ETFs with exclusive exposure to Chinese equities posted $14 billion in net outflows over the same period.
EM Europe has also seen investor interest pick up, backed by the economic turnaround in Germany and strong equity performance, particularly in the DAX index .GDAXI.
The Avantis Emerging Markets ex-China Equity ETF AVXC.O is up 15.1% year-to-date, while the abrdn Emerging Markets ex-China Fund has risen 14%. By comparison, the MSCI Asia-Pacific Index .MIAP00000PUS is up 11.6%, and China’s Shanghai Composite Index .SSEC has gained just 4.9%.
"The concentration risk, along with the broader underperformance of Chinese equities and heightened geopolitical risks, has prompted both asset managers and allocators to reconsider their approach," said Mathieu Caquineau, senior principal for equity strategies ratings at Morningstar.
However, investors seeking diversification and outperformance could not risk excluding China completely, he said.
EM ex-China net assets hit record high https://reut.rs/4lzsKgG
Total number of EM ex-China funds https://reut.rs/454OoDz
Flows into China and EM equity ETFs https://reut.rs/3THSvPz
(Reporting By Patturaja Murugaboopathy; additional reporting by Gaurav Dogra in BengaluruEditing by Vidya Ranganathan and Philippa Fletcher)
((patturaja.muruga@thomsonreuters.com;))