What Does Post-Brexit Signify for Emerging Market Opportunities in China?

Posted by FlexShares on Oct 30, 2017 8:30:00 AM

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China, the country which raised 800 million people out of poverty in a single generation, is at the nexus of many critical post-Brexit global trade alliances.[1] In addition to being the top trading partner with the U.S., China is the number two trading partner of EU and a top 10 trader with the U.K. China has a long economic history with the British, and in 2015 it took several steps toward a new long-term strategy of linking the renminbi to the pound. Now that Brexit moves toward settlement, how might China and its investors pivot to optimize the new order?

Even before Brexit, we believe China was preparing to expand its financial and political sphere. Just as other economic superpowers seem to be retreating, the world's second-largest economy is positioning itself to be a dominant force in:

  • Renewable energy
  • High-tech infrastructure
  • Private equity
  • Venture capital

China's Outbound Foreign Direct Investment (OFDI) went from $45 billion in 2004 to $613 billion in 2013.[2] Global assets are on track to increase from the current figure of $6.4 trillion to almost $20 trillion by 2020, setting the stage for a major shift in the global financial system.[3]

China has already assumed a critical role in economic development on four continents as a major player in the BRICS Development Bank, the Asian Infrastructure Bank, and various infrastructure projects across Africa. Plans to re-launch the Silk Road, via the $900 billion “One Belt, One Road" initiative are currently underway, beginning with the 2016 opening of Africa's first transnational electric railway.

Opportunities for long-term private sector financing could open across a variety of channels. Transportation infrastructure, for example, requires not only tracks and trains that may come from China, but also advanced technology for switching and telecommunications that may come from the U.S. or Europe. Investors interested in betting on China's vision can find opportunities in both the emerging and developed markets.

Whatever their portfolio goals, FlexShares wants to help investors stay informed and make better investment decisions. Learn more in "Post-Brexit China: The Silk Road Opens Again."

Written in conjunction with Tasha Williams utilizing Contently. Tasha is a former banking risk analyst who has written about ETFs, social impact investing and fintech.

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[1] World Bank, sourced on 10October2017. http://databank.worldbank.org/data/reports.aspx?source=global-economic-prospects&Type=TABLE&preview=on.

[2] Zhou, Lihuan. World Resources Institute. “China’s Overseas Investments, Explained in 10 Graphics.” 28January2015. http://www.wri.org/blog/2015/01/china%E2%80%99s-overseas-investments-explained-10-graphics.

[3] Hanemann, Thilo. Mercator Institute for China Studies. “Chinese Foreign Direct Investment in Germany and Europe. Sourced on 15October2017. https://www.merics.org/en/merics-analysis/papers-on-china/cofdi/merics-analyses/.

Tags: ETF Industry

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