With 2023 coming to a close it’s perhaps worth revisiting a folly many Western allocators have made in the EM space the past year: Being long China.

As Goldman’s Kamakshya Trivedi opened up about in an interview recently (see here), 2023 has been a year of painful lessons for many.

“The first lesson is that you want to treat EM and EM ex-China differently,” (…)  “Chinese assets have been pretty uncorrelated with a lot of other EM assets for some time: that has been true on the equity side and also the fixed-income side.”

“The second lesson, he said, is about the resilience of broader emerging markets, even in the face of an “aggressive hiking cycle by the Fed, a strong dollar, and a slowing China. That is a pretty bad combination of circumstances for EM assets and despite that, EM assets have performed resiliently”

While we were on the front foot of “the second lesson” to some extent (see here), the first takeaway is certainly a lesson for many in 2023 – and for most a rather painful one. We haven’t escaped unscathed either (see here).

Chart 1: Xi didn’t back his promise, (Bloomberg)