China and Geopolitics Shape the Emerging Markets (Roundtable 'Emerging Market Equities' – Part 3)

June 22, 2026

      

Chair: Harry Geels, Auréus Participants: Ben Buckler, Baillie Gifford James Cook, Federated Hermes Wim-Hein Pals, Robeco René van der Zeeuw, onafhankelijk bestuurder

         

If we translate this into portfolio choices, how do you view regional positioning? Where do the opportunities currently lie, and where are the risks?

Cook: ‘You can now clearly see that emerging markets are increasingly diverging along geopolitical lines. You’re effectively seeing different blocs, with Asia heavily dependent on global trade and energy imports, and other regions such as Latin America actually benefiting from higher commodity prices. That makes the differences between regions greater than before. At the same time, you have to be careful not to steer things too much from the top down, because ultimately it’s still all about companies and valuations.’

Buckler: ‘We look less in terms of regions or blocs and more at individual companies. Even within a geopolitical tension, you can find companies that simply continue to grow and create value. The risk of thinking too much in terms of blocs is that you miss opportunities that don’t fit into that larger narrative. ’

Van der Zeeuw: ‘From an asset owner’s perspective, you actually need to combine both. You cannot ignore this geopolitical bloc formation, so you want diversification across different regions and power blocs. At the same time, you also want to combine different styles. Precisely because the world is becoming more fragmented, diversification is becoming even more important.’

Pals: ‘On top of that, these geopolitical shifts also affect the benchmarks. Countries may be upgraded or downgraded in benchmark weighting, and that leads to capital flows between those blocs. These are moments when, as an active investor, you can anticipate.’

Cook: ‘It underlines the fact that emerging markets are not a homogeneous asset class. The differences between countries, and also between geopolitical blocs, are enormous. As an investor, you need to respond to that actively.’

Van der Zeeuw: ‘Ultimately, it’s about building a portfolio that can withstand various geopolitical scenarios. That requires diversification, but also clear and deliberate choices.’

Returning to China: this country is a major and sometimes controversial part of emerging markets. How do you currently view China within the asset class?

Cook: ‘For a long time, China was seen as uninvestable, but that sentiment is beginning to shift. At the same time, macro challenges remain, such as property and weak consumption. But if you look at innovation and industrial strength, you see a different picture. In sectors such as electric vehicles, China has developed at breakneck speed and built up a strong global position. That shows just how competitive the country has become, although overcapacity also brings risks.’

Buckler: ‘China is increasingly recognising that the stock market must play a key role in wealth creation. Capital finds it difficult to leave the country, property is less attractive and interest rates are low. This puts pressure on companies to improve shareholder returns. At the same time, China has built up a dominant position in sectors such as EVs and batteries, which offers structural opportunities.’

Pals: ‘China is investable, but you have to be selective. In sectors such as EVs and solar energy, there is significant overcapacity and many companies are operating at a loss. Growth does not automatically translate into returns in these sectors. For us, it is essential that companies actually create value for shareholders.’

Van der Zeeuw: ‘Moreover, we live in a multipolar world. You should really view China as a separate allocation, alongside, for example, Asia excluding China and the Americas. That makes it easier to invest in a more targeted way.’

Pals: ‘China certainly offers opportunities, but requires a different and more conscious approach than in the past.’

To what extent does governance play a role in the development of emerging markets, and what can investors do in this regard?

Cook: ‘Korea is a good example. It had a governance discount for years, but due to pressure from investors and new legislation, you now see real improvements, such as better protection for shareholders. That has a direct impact on valuations. At the same time, regulatory risk remains important, certainly in China too, where government intervention can quickly affect confidence.’
 

We try to find companies whose long-term growth is underestimated. That requires a long-term perspective and discipline.

 
Pals: ‘In China, you see progress, but regulatory risk remains a make-or-break factor. Take the education sector, which was hit hard by regulation in one fell swoop. That is why we explicitly factor this into our valuations, for example through a higher discount rate. That protects against major downside risks.’

Van der Zeeuw: ‘There is growing awareness in boardrooms across emerging markets that a well-functioning capital market is essential. This is reflected in better capital allocation and higher dividends, partly driven by pressure from investors.’

Buckler: ‘Globalisation helps in this regard. As markets become more integrated, the pressure to meet international standards increases. We focus primarily on regulatory risks at the corporate level, both nationally and geopolitically.’

Van der Zeeuw: ‘It remains a long-term process, however. Governance is improving, but not everywhere at once. That is precisely why active management is important.’

We’ve already touched on ESG, but can a truly sustainable institutional investor with a strong focus on impact and decarbonisation invest effectively in emerging markets?

Pals: ‘Yes, certainly. But for us, it’s mainly about the change, the so-called delta. If a company is already fully green, much of the return is already priced in. It is precisely those companies that aren’t yet green, but are moving in that direction, that offer opportunities. Through engagement, you can accelerate that transition, and that also translates into returns.’

Van der Zeeuw: ‘Emerging markets actually offer the greatest opportunities for impact. It’s more difficult, but the gains you can make are also greater. ESG is no longer a nice-to-have there, but essential for assessing risk and return. By actively engaging with companies and local stakeholders, you can achieve both impact and financial returns.’

Buckler: ‘The variation is enormous. You can build portfolios comprising only the best companies, but often the greatest returns lie precisely in companies that are improving. At the same time, you see many contradictions. A company may score poorly on environmental issues but contribute significantly to social development. That makes selection crucial.’

Cook: ‘Engagement is the key word here. It is precisely by helping companies improve that you create value. Companies that already score perfectly are often already expensive. The real opportunity lies in change.’

Any final remarks?

Cook: ‘As far as I’m concerned, the most important thing is that investors do not view emerging markets as a single homogeneous asset class. The differences between countries, sectors and companies are enormous. That is precisely what makes it interesting, but it also requires an active and disciplined approach.’
 

The differences between countries, and also between geopolitical blocs, are enormous. As an investor, you need to actively respond to that.

 
Buckler: ‘I would add that investors shouldn’t be overly guided by the past. The last ten to fifteen years have been challenging for emerging markets, but the structure of the market has now fundamentally changed. We often see that cyclical developments receive a lot of attention, whilst the structural changes beneath the surface are less visible. It is precisely those structural trends, such as technological development and corporate growth, that determine long-term returns.’

Pals: ‘As far as we’re concerned, we’re truly at a tipping point. The combination of improved earnings growth, more attractive valuations and shifting capital flows could lead to a prolonged period of outperformance. But that does require patience and conviction from investors.’

Van der Zeeuw: ‘And remain realistic in your expectations. You don’t need to aim for spectacular outperformance. A stable, consistent contribution to the portfolio’s total return is valuable in itself. You achieve that through diversification, discipline and combining different styles.’

Cook: ‘And perhaps one more point: volatility is part of the game. You shouldn’t try to avoid it, but rather understand and exploit it.’

Buckler: ‘Exactly. For investors willing to look beyond that volatility, emerging markets remain one of the most interesting parts of the global equity markets.’
 

Harry Geels Harry Geels is Deputy Editor-in-Chief of Financial Investigator. He also works at Auréus as a Senior Investment Adviser. At Auréus, Geels is jointly responsible for the research into and selection of investment funds. He is also a part-time lecturer at the Actuarial Institute. Geels obtained his Master’s degree in Financial Economics from VU Amsterdam in 1994. He writes columns for Financial Investigator in a personal capacity.

  

Ben Buckler Ben Buckler is an Investment Specialist in Baillie Gifford’s emerging markets equity team. He joined the firm in 2001 as an Investment Manager, moved to China in 2008, and spent six years as Executive Director of Asian Equities at UBS in Hong Kong. Since his return in 2018, he has focused on client relations for Baillie Gifford’s emerging markets team. He holds a Master’s degree in Geography and an MBA (Oxford).

  

James Cook James Cook is Head of Investment Directors & Specialists at Federated Hermes. In this role, he leads the team of investment specialists supporting equity, fixed income and multi-asset products, and also serves as Investment Director for emerging markets strategies. Previously, he was Product Director for emerging markets equities at Fidelity Worldwide Investments. He studied Economics at Royal Holloway, University of London.

  

Wim-Hein Pals Wim-Hein Pals is head of the Robeco Emerging Markets Equity team, which he co-founded in 1994. He is Lead Portfolio Manager of the Global Emerging Markets Core strategy. Previously, he was Portfolio Manager for Emerging European and African equities and Portfolio Manager for Emerging Asian equities. Pals began his career in the investment industry at Robeco in 1990.

 

René van der Zeeuw René van der Zeeuw is an independent board and investment adviser to pension funds and asset managers. He began his career in 1988 at Robeco and co-founded the emerging markets team in 1994. From 2008 to 2023, he worked at APG Asset Management, where he built up the emerging markets equities team and was later responsible for Global Fundamental Equities. From 2015 to 2020, he served as a director of the APG staff pension fund.

 

Read the full article in Financial Investigator magazine