Emerging markets: Investors are overlooking China’s powerful export story

China’s property slowdown and weak consumer demand dominate the debate, but they tell only part of the story, argues the Pendal Global Emerging Markets Opportunities team

Key points:

• China’s exports strengthen growth in emerging markets despite domestic weakness
• Technology and industrial exports challenge developed markets
• Learn more about Pendal Global Emerging Markets Opportunities Fund

CHINA’S export-led growth is creating opportunities that may be underappreciated by emerging markets investors. While attention remains focused on the country’s property downturn and subdued domestic demand, Chinese technology and industrial companies are expanding their share of international markets. The Pendal Global Emerging Markets Opportunities team believes this strengthens the investment case for selected Chinese businesses while increasing competitive pressure on exporters elsewhere in Asia.

A powerful export engine, led by technology and industrial sectors, is helping to drive growth as Chinese firms gain share in international markets.

However, the investment implications, both for China and its competitors, are not yet fully reflected, according to the Pendal Global Emerging Markets Opportunities team.

China’s economic narrative is dominated by its prolonged property downturn and slowing domestic demand and consumption.

Both are real. However, in the second quarter of this year, Chinese real GDP still grew by 4.3 per cent year-on-year.

The missing piece of the puzzle is China’s powerful export growth, which has led to a large external surplus (evident in both the trade balance and current account balance).

China’s trade surplus has nearly doubled, from US$670 billion in 2021 to US$1.2 trillion in the 12 months to August 2026, as export volumes have significantly outpaced imports.

The result is an economy that has become increasingly reliant on net exports at a time when domestic demand remains subdued.

How China’s exports are reshaping emerging markets

More importantly, for investors and politicians globally, the composition of China’s exports has fundamentally changed.

As with other Asian ‘tiger economies’, the first wave of Chinese export growth was driven by labour-intensive manufacturing and assembly.

Today’s export expansion is increasingly concentrated in higher-value-added industrial and technology sectors.

Analysts at the US Federal Reserve argue that a ‘China Shock 2.0’ is underway, characterised by growing Chinese competitiveness in areas such as advanced machinery, electronics, power infrastructure and other technology-intensive industries.

Some European economists have described China’s strategy as ‘a growth model aiming at industrial and technological dominance’.

What both agree on is that an undervalued renminbi is key to this approach. The US analysis suggests that the renminbi, the currency of the world’s second-largest economy, is 24 per cent undervalued. This is having a growing impact on the world’s more developed economies.

China is capturing a growing share of global exports, increasingly competing in higher-value sectors once dominated by developed markets.

Chinese industrial overcapacity and exchange-rate management policies are becoming a central feature of policy discussions in Washington, Brussels and European national capitals.

Investment implications for emerging markets investors

For emerging market equity investors, we believe this presents opportunities.

While investor attention continues to focus on cyclical domestic challenges, we believe the strength of China’s export sector is not fully appreciated.

We remain overweight China, including Chinese technology and industrial businesses that are benefitting directly from the country’s growing share of international markets.

By contrast, we remain cautious on several Asian export-oriented industries, including in Korea and Taiwan, where the overlap with China’s export profile is increasing and competitive pressures are intensifying.

We believe the ‘China Shock 2.0’ strengthens the investment case for China.

Emerging markets: frequently asked questions 

Why are China’s exports important for emerging markets? 

China’s export growth is supporting the economy while domestic demand remains subdued. Its move into higher-value technology and industrial sectors is also reshaping competition across emerging markets and developed markets. 

Which sectors are driving China’s emerging markets export growth? 

Export expansion is increasingly concentrated in advanced machinery, electronics, power infrastructure and other technology-intensive industries. 

What does China’s export growth mean for emerging markets investors? 

The Pendal Global Emerging Markets Opportunities team sees opportunities in selected Chinese technology and industrial businesses that are gaining international market share. 

What are the risks for other emerging markets in Asia? 

Export-oriented industries in Korea and Taiwan face increasing competition where their export profiles overlap with China’s growing technology and industrial capabilities. 

About Pendal Global Emerging Markets Opportunities Fund

James Syme, Paul Wimborne, Ada Chan and Roshni Bolton are co-managers of Pendal’s Global Emerging Markets Opportunities Fund.

The fund aims to add value through a combination of country allocation and individual stock selection.

The country allocation process is based on analysis of a country’s economic growth, monetary policy, market liquidity, currency, governance/politics and equity market valuation.

The stock selection process focuses on buying quality growth stocks at attractive valuations.

Find out more about Pendal Global Emerging Markets Opportunities Fund here
 
Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management.

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