Jeremy Grantham’s Boston-based investment firm is tapping into popular demand on Wall Street for emerging-market strategies that avoid China altogether, as investors prep for fresh disruptions across global supply chains on the back of Donald Trump’s combative trade posture.
Grantham Mayo Van Otterloo & Co. is debuting the GMO Beyond China ETF (ticker BCHI) Feb. 13, investing in about 100 stocks around the developing world with India, Thailand and Mexico among the biggest positions.
Chinese markets have staged a tech-driven rebound of late, causing traders who snubbed the world’s second-largest economy to underperform the MSCI Emerging Markets Index by eight percentage points over the past 12 months. Still, on five- and 10-year time horizons, the ex-China strategy easily wins out, with foreign investors beating a retreat thanks to the nation’s elevated debt burden and trade tensions with the U.S.
“What we are seeing is that a number of companies and countries are looking to diversify their supply chains out of China,” said Arjun Divecha, founder of GMO’s emerging markets equity team. “There’s a fairly large substantial economic force that’s driving this.”
Global asset managers have famously divested in recent years as the Asian giant struggles to cope with a housing crisis, an aging population and mounting debt. GMO estimates that emerging markets ex-China ETFs have grown to over $16 billion in assets within just two years.
Still, sentiment has improved after Beijing unleashed a stimulus blitz in late September, while the emergence of the DeepSeek’s artificial-intelligence app has ignited broad optimism over the tech sector.
As the Chinese market has recovered, recently launched ETFs focusing on EM ex-China have struggled to gather fresh capital. The $15 billion iShares MSCI Emerging Markets ex China ETF (EMXC), the largest of its kind, has started to see outflows after its assets grew 422% in less than two years.
Despite the short-term ebbs and flows in market sentiment, GMO sees resilient demand for the strategy ahead, citing the growth of cross-border supply chains bypassing China altogether.
“China has recovered, so therefore there’s less interest in the ‘next China,’” said Warren Chiang, BCHI’s portfolio manager. But “if you think about where the world’s going, this trend of people wanting to diversify out — taking a little bit of pain to build a new factory somewhere else — we don’t see it changing.”
The firm, co-founded by Grantham and managing around $65 billion in assets as of December, has a flagship broad-based emerging markets strategy, which was introduced in 1993. The fund has around $365 million and has been slightly underweight China since 2021.
