China’s Weakening Influence in Emerging Markets
China’s influence in the global economy has been steadily increasing in recent years, but its weight in a key emerging market index has dropped to a record low. The MSCI Emerging Markets Index, which tracks the performance of 23 emerging markets, has seen China’s weight drop from a peak of 32.7% in 2018 to just 28.3% in 2024.
The decline in China’s weight in the index is due to a number of factors, including the country’s slowing economic growth and the rise of other emerging markets. China’s economic growth has been slowing since 2018, with the country’s gross domestic product (GDP) growth rate falling from 6.6% in 2018 to 6.1% in 2024. This has led to a decrease in the country’s share of the global economy, which has fallen from 16.3% in 2018 to 15.7% in 2024.
At the same time, other emerging markets have been gaining ground. India’s weight in the index has risen from 8.3% in 2018 to 10.2% in 2024, while Brazil’s weight has increased from 8.2% to 9.3%. This has been driven by strong economic growth in both countries, with India’s GDP growth rate rising from 7.2% in 2018 to 8.2% in 2024, and Brazil’s GDP growth rate increasing from 1.1% to 2.3%.
China’s Stock Market Struggles
The decline in China’s weight in the index is also due to the country’s stock market struggles. The Shanghai Composite Index, which tracks the performance of all stocks listed on the Shanghai Stock Exchange, has fallen from a peak of 3,587 points in 2018 to 2,867 points in 2024. This has been driven by a number of factors, including the US-China trade war, the slowing Chinese economy, and the government’s efforts to reduce leverage in the financial system.
The decline in the Shanghai Composite Index has had a negative impact on China’s weight in the MSCI Emerging Markets Index. The index is weighted by market capitalization, so a decline in the value of Chinese stocks has led to a decrease in the country’s weight in the index.
China’s Growing Influence in Other Areas
Despite the decline in its weight in the MSCI Emerging Markets Index, China’s influence in the global economy is still growing. The country is the world’s largest trading nation, and its share of global trade has risen from 11.3% in 2018 to 12.2% in 2024.
China is also the world’s largest holder of foreign exchange reserves, with its reserves rising from $3.1 trillion in 2018 to $3.5 trillion in 2024. The country is also the world’s largest investor in infrastructure, with its investments in infrastructure rising from $1.2 trillion in 2018 to $1.5 trillion in 2024.
Implications for Investors
The decline in China’s weight in the MSCI Emerging Markets Index has important implications for investors. The index is widely used by investors to gauge the performance of emerging markets, and a decrease in China’s weight could lead to a decrease in the index’s performance.
At the same time, investors should be aware of the potential risks associated with investing in China. The country’s slowing economic growth and stock market struggles could lead to further declines in the country’s weight in the index, and this could have a negative impact on the performance of the index.
The Future of China’s Influence
Despite the decline in its weight in the MSCI Emerging Markets Index, China’s influence in the global economy is still growing. The country is the world’s largest trading nation, and its share of global trade is increasing. It is also the world’s largest holder of foreign exchange reserves, and its investments in infrastructure are growing.
However, investors should be aware of the potential risks associated with investing in China. The country’s slowing economic growth and stock market struggles could lead to further declines in the country’s weight in the index, and this could have a negative impact on the performance of the index. As such, investors should be aware of the potential risks associated with investing in China, and should consider diversifying their portfolios to mitigate these risks.