Man Group: China's Markets Offer Diversification Amid Rising Dispersion

Man Group PLC has released an analysis highlighting the potential of China's markets to offer global investors diversification benefits amidst increasing market dispersion and uncertainty. The firm argues that China's historically low correlations with global markets, coupled with enhanced access routes, make it an attractive proposition.

The firm notes that rising global market uncertainty, partly driven by geopolitical factors, is increasing market dispersion. This, in theory, presents more opportunities for portfolio diversification. Man Group points out that traditional extensions to global indices may not yield desired diversification due to regional concentration effects. Instead, direct allocations to emerging markets, such as China, offer better potential for returns driven by local factors.

Access to China's capital markets has seen significant improvement. Regulators have expanded the Qualified Foreign Institutional Investors (QFII) program and developed international trading routes, offering foreign investors better access to derivatives and other financial instruments. These include avenues like Stock Connect, Bond Connect, and the China Interbank Bond Market (CIBM).

Man Group suggests that a China-focused trend-following strategy is particularly well-suited to capitalize on market dispersion and deliver strong risk-adjusted returns, along with portfolio diversification. The firm highlights that China has significantly increased the number of futures and options available under the QFII scheme recently, facilitating greater access for global investors to these markets.