US-China trade war hits passive investors

Nearly six years ago, when Big Tree Capital launched its emerging markets-focused ETF EMQQ, China had already embarked on bold measures to open its financial markets, and its founder, Kevin Carter, thought US-China relations could only improve in the long run.

“I was completely wrong about that,” Mr Carter said, pointing out relations between the two countries recently have gone on to hit what he described as the worst he had observed since he started his career in passive investing.

Yet despite the US-China trade war that has dominated headlines, and a deteriorating political climate made worse by the pandemic, Big Tree’s EM ETF has done quite well, with assets under management rising nearly 60 per cent this year to more than $115m.

That unexpectedly strong performance could convince investors to believe buying Chinese equities might continue to pay off handsomely, even as US-China tensions worsen. Yet hostility between Washington and Beijing is raising questions about how sustainable that trend really is. Troubling signs have emerged since the beginning of the year — the US Senate passed legislation in May that could force Chinese companies to delist from Wall Street, and only last month the US State Department warned US colleges they should divest from Chinese stocks,…

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