Geopolitical tensions – particularly between China and the US – have shown how ETFs can be vulnerable to government policy. After the latest round of sanctions against Chinese companies, fund managers had to offload billions to comply with the restrictions while index providers revised their listings.
As US firms pulled out of the newly blacklisted Chinese companies, their absence gave investors elsewhere an opportunity to cash in on discounted stocks. Meanwhile, the measures implemented by Donald Trump in the last days of his presidency barely caused a dent in China’s equities market.
For asset managers tracking bond indices, sanctions can be a minefield. The inherent lack of transparency makes it difficult to establish if a subsidiary company is affected, or whether the impact remains with the parent company alone.
As one spokesperson highlights in this report, geopolitical risk is to be expected when investing in emerging markets – “it’s the nature of the beast”. For ETF providers, it is a situation worth watching closely.
Alex Rolandi, Assistant Editor, Funds Europe
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