How to invest in emerging markets while avoiding China investment risks

Investors traditionally target emerging markets for higher growth opportunities, and China falls into this bucket.

However, investing in China has always carried risks as the country remains shrouded in secrecy, plagued by human rights issues and less transparent in its capital markets.

Now, with president Donald Trump in the White House, the relationship between the world’s two largest economies has become more complex, with the two countries exchanging barbs over tariffs and rare earth minerals, among other issues.

To avoid volatility in China, Vanguard has developed a solution to target the largest emerging markets, such as Brazil, India and Taiwan, through its China Emerging Markets Exchange-Traded Fund, or VEXC, which simply excludes China.

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“VEXC is an option for investors who seek exposure to a low-cost index of emerging market stocks but may want to avoid companies based in China due to the unique risks of these companies,” a Vanguard spokesperson told FOX Business.

The ETF, launched in September, aims to emulate the FTSE emerging markets index outside China, with more than 1,000 companies, including Taiwan Semiconductor Corp and Infosys. The fund, recommended as a long-term investment, has close to $50 million in assets and has returned nearly 4% since launch, slightly lagging its benchmark index’s 4.9% gain.

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Over the course of the year, the FTSE Emerging Markets Ex-China Index advanced more than 26%.

Trump and Chinese President have a phone call and plan a meeting

Trump, a harsh critic of China, recently held a phone call with President Xi Jinping, which he described as productive.

“Just had a very good phone call with President Xi of China,” Trump wrote in a post on Truth Social. “We discussed many topics including Ukraine/Russia, fentanyl, soybeans, other agricultural products, etc. We made a good deal that is very important for our large farmers – and it will get better. Our relationship with China is very strong! This call was a follow-up to our very successful meeting in South Korea, three weeks ago. Since then, there has been significant progress on both sides in keeping our agreements current and accurate. Now we can set our sights on the big picture.”

To avoid volatility in China, Vanguard developed a solution to target the largest emerging markets, such as Brazil, India and Taiwan, through the former Vanguard China Emerging Markets ETF. (Brendan Smalowski/AFP/Getty Images)

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Xi invited Trump to visit Beijing in April, an invitation he accepted.

“To that end, President Xi invited me to visit Beijing in April, which I accepted, and I reciprocated as he will be my guest on a state visit to the United States later in the year. We agreed that it was important that we communicate frequently, which I look forward to doing,” Trump said.