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White Paper

The China Investment Dilemma

Risks for U.S. Investors During a Turbulent Time

China’s rise as an investment destination has occurred amidst a significant deterioration in the U.S.-China relationship. Nicholas Borst examines how U.S. investors can navigate the dilemma of investing in China, a market that is too big to ignore but full of new and complicated risks.  He offers a disciplined approach to evaluating how the challenges posed by the volatile U.S.-China relationship can impact investment returns.

Driven by the growth of its economy and capital markets, China is rapidly emerging as a major investment destination for global investors. The country has experienced a dramatic rise in foreign investment inflows, and its weight in global bond and stock indices is increasing. Americans now own hundreds of billions of dollars of Chinese securities, and China is one of the largest single-country exposures for U.S. investors.

This moment ought to be a triumphant one for both China’s capital markets and U.S. investors seeking greater exposure to the country’s economic success. Instead, investing in China has become more fraught than ever, as a result of the deteriorating relationship between China and the U.S. The growing economic and security tensions between the two countries have spilled over to the equity markets, with deleterious consequences for a wide swathe of companies. Now as the COVID-19 pandemic buffets global financial markets, both countries seem more interested in assigning blame than working together to address the crisis. Navigating the risks and opportunities of investing in China will be one of the most important challenges facing globally minded U.S. investors for years to come.

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