MSCI EM excluding China

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tradez
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MSCI EM excluding China

Post by tradez »

Has anybody invested in MSCI EM excluding China instead of EIMI? I believe the ticker is EMXC. I am bullish on emerging markets in the long term (mainly India), but less optimistic about China. It does put a lot more emphasis on Taiwan however, which is also not ideal.
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tre3sori
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Re: MSCI EM excluding China

Post by tre3sori »

tradez wrote: Sat Jan 21, 2023 5:43 pm I am bullish on emerging markets in the long term (mainly India), but less optimistic about China.
A question to ask: What do you know MORE about China than the market (i.e. the aggregate of all these private and professional investors out there)? With your knowledge is it more or less likely that you find the right weight for China compared to the market? If you come to the conclusion that it is probably less likely that with your limited knowledge you find the right weight of China than you probably should stick with products like Vanguard FTSE All-World or iShares MSCI ACWI. You could tilt towards India by adding a (rather expensive :( ) iShares MSCI India ETF.
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Re: MSCI EM excluding China

Post by tubaleiter »

tre3sori wrote: Sun Jan 22, 2023 5:04 am You could tilt towards India by adding a (rather expensive :( ) iShares MSCI India ETF.
Why not use the smaller but much cheaper and more diversified Franklin Templeton ETF, in the appropriate flavour?

https://www.franklintempleton.co.uk/our ... 00BHZRQZ17

or

https://www.franklintempleton.com/inves ... a-etf/FLIN

I don't have any desire for an India tilt, but do use their Canada fund to close an otherwise idiosyncratic gap in my holdings (my core non-US developed fund follows the MSCI EAFE index which excludes Canada for no good reason) and get back to market weight.


For tradez, agree with tre3sori, unless you have some kind of edge, no reason to believe that you know more about China than the market. Many people have concerns about China, but we would expect those to be priced in. Although I do think the FRDM ETF is interesting, if you think that "freedom" is under-valued in equity pricing (although 0.49% expenses and a 23% weight for Chile hasn't convinced me to invest - nothing against Chile, but 23.3% compared to an EM market weight of 0.7% is a HUGE tilt).

If you really want to exclude China, EMXC seems reasonable, just worth questioning why you think that's the right thing to do.
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Re: MSCI EM excluding China

Post by tradez »

I don't buy the argument of "What do you know that the market doesn't know about China? It's already priced in". I could argue the same with people that choose to add an EM ETF to their VWRP or IWDA market portfolio. What do they know about the market that means they want to add even more weight to emerging markets, or small caps etc.
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Re: MSCI EM excluding China

Post by Anon9001 »

China weightage is pretty small if you cap-weight EM. Its more of a concern if you overweight EM massively and I mean massively. Even a 50% Equity allocation to EM would mean you only have a 16% allocation to China or if you consider Taiwan to be part of China 23% allocation. This is nothing when you compare the weightage to US weightage of 55-60% in ACWI.
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Re: MSCI EM excluding China

Post by nps »

XCEM has a lower ER than EMXC but more Taiwan. FRDM doesn't include India.
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Re: MSCI EM excluding China

Post by exodusing »

tradez wrote: Sun Jan 22, 2023 7:16 am I don't buy the argument of "What do you know that the market doesn't know about China? It's already priced in". I could argue the same with people that choose to add an EM ETF to their VWRP or IWDA market portfolio. What do they know about the market that means they want to add even more weight to emerging markets, or small caps etc.
Whether or not you buy it, fundamental investment theory is that to deviate from the market portfolio, you should either know something the market doesn't (or be better at analyzing available information) or be meaningfully different from the average investor (weighted by capital or trading activity, not the average person who invests).

Not everyone is the same and there will be some who overweight, e.g., EM, and some who underweight. The existence of such people is not inconsistent with fundamental investment theory. Perhaps they do know something or have an insight or are meaningfully different.

That being said, you're obviously free to invest however you want and many investment choices are a matter of personal taste.
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Re: MSCI EM excluding China

Post by galeno »

Why?

VWRD PE = 14.3
WSML PE = 11.8
VDEM PE = 11.2

We only hold VWRD. But very tempted to sell 20% and put the half the proceeds into developed world SCs and the other half into EM.

tradez wrote: Sun Jan 22, 2023 7:16 am I don't buy the argument of "What do you know that the market doesn't know about China? It's already priced in". I could argue the same with people that choose to add an EM ETF to their VWRP or IWDA market portfolio. What do they know about the market that means they want to add even more weight to emerging markets, or small caps etc.
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Re: MSCI EM excluding China

Post by DoctorE »

galeno wrote: Sun Jan 22, 2023 8:17 am Why?

VWRD PE = 14.3
WSML PE = 11.8
VDEM PE = 11.2

We only hold VWRD. But very tempted to sell 20% and put the half the proceeds into developed world SCs and the other half into EM.

tradez wrote: Sun Jan 22, 2023 7:16 am I don't buy the argument of "What do you know that the market doesn't know about China? It's already priced in". I could argue the same with people that choose to add an EM ETF to their VWRP or IWDA market portfolio. What do they know about the market that means they want to add even more weight to emerging markets, or small caps etc.
I recently did just that considering the under-performance of EM, Small Caps and xUS for the last 10 years. I could be wrong.
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Re: MSCI EM excluding China

Post by tradez »

galeno wrote: Sun Jan 22, 2023 8:17 am Why?

VWRD PE = 14.3
WSML PE = 11.8
VDEM PE = 11.2

We only hold VWRD. But very tempted to sell 20% and put the half the proceeds into developed world SCs and the other half into EM.
Unless I misunderstand, are you saying that VWRD is performing the best? I am not quite sure what "PE = 14.3" means! (Still learning)
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Re: MSCI EM excluding China

Post by M22RPCV »

nps wrote: Sun Jan 22, 2023 7:34 am XCEM has a lower ER than EMXC but more Taiwan. FRDM doesn't include India.
I decided on this one and bought my first shares on Friday.
For me wanting to exclude investments in China comes down to 1) not trusting the CCP and 2) not wanting to fund the PLA.
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Re: MSCI EM excluding China

Post by Hector »

Why don’t you overload India ETF?
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Re: MSCI EM excluding China

Post by nedsaid »

tre3sori wrote: Sun Jan 22, 2023 5:04 am
tradez wrote: Sat Jan 21, 2023 5:43 pm I am bullish on emerging markets in the long term (mainly India), but less optimistic about China.
A question to ask: What do you know MORE about China than the market (i.e. the aggregate of all these private and professional investors out there)? With your knowledge is it more or less likely that you find the right weight for China compared to the market? If you come to the conclusion that it is probably less likely that with your limited knowledge you find the right weight of China than you probably should stick with products like Vanguard FTSE All-World or iShares MSCI ACWI. You could tilt towards India by adding a (rather expensive :( ) iShares MSCI India ETF.
Not against China, the country or its people. There is just something about the rule of law and respect for intellectual property. If you own a mainland Chinese stock, what, if anything, do you really own? I really thought the Hong Kong Stock Market was a great proxy for investing directly in China, now Hong Kong is just another Chinese city. The one country two systems thingee didn't last through the Covid epidemic. So I have much less confidence investing through Hong Kong than I did before. I have very little confidence in mainland Chinese Stocks.

Of course, the markets know all of this. I do wonder if there is a lot of denial over what has been happening. There are things folks don't want to think about. It's a big shame as I have wanted to visit there for a long time and I believe there is great potential there. Culture, food, architecture, many wonderful things to see. Just see certain things going certain directions in a way that just can't be good for outsiders trying to invest there.

Reminds me of a story of my father and his dad. They watched as scrap metal was being loaded on ships to be sent to a country we would be at war with fairly soon after dad and grandfather witnessed this. Grandfather made the comment that all that scrap metal we were shipping to this country would be used against us. This was probably, I don't know, maybe 1938 or 1939 or 1940. I am sure this crossed the mind of others who knew of this but it was too terrible to want to think about.

The story with China that no one wants to think about is that foreign investment could just be nationalized with an edict from leadership. What you thought was yours now belongs to us, and there isn't a thing you can do about it. All with the stroke of a pen. Likely? Maybe not. There would be repercussions. But sometimes a national leader makes decisions like these not caring about the consequences. Sometimes leaders do such things simply because they can.

That being said, I have maintained my Emerging Markets investments, which of course are weighted something like 30% China. I have given thought to substituting the Emerging Markets ex-China ETF for my Emerging Market Funds but I have not made the switch. I would love to be a China bull. Their people deserve growing prosperity and living standards. I truly want the best for their country and its people. From the standpoint of an outsider who has smaller amounts of investments there, certain things give me pause.
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Re: MSCI EM excluding China

Post by WhiteMaxima »

China economy is 2nd to US. As region, EU is No1, US is No2 China is No 3. I would single out China EM. I would invest a broad market ETF consider single country risk.
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Re: MSCI EM excluding China

Post by Valuethinker »

nedsaid wrote: Sun Jan 22, 2023 10:06 pm
tre3sori wrote: Sun Jan 22, 2023 5:04 am
tradez wrote: Sat Jan 21, 2023 5:43 pm I am bullish on emerging markets in the long term (mainly India), but less optimistic about China.
A question to ask: What do you know MORE about China than the market (i.e. the aggregate of all these private and professional investors out there)? With your knowledge is it more or less likely that you find the right weight for China compared to the market? If you come to the conclusion that it is probably less likely that with your limited knowledge you find the right weight of China than you probably should stick with products like Vanguard FTSE All-World or iShares MSCI ACWI. You could tilt towards India by adding a (rather expensive :( ) iShares MSCI India ETF.
Not against China, the country or its people. There is just something about the rule of law and respect for intellectual property. If you own a mainland Chinese stock, what, if anything, do you really own? I really thought the Hong Kong Stock Market was a great proxy for investing directly in China, now Hong Kong is just another Chinese city. The one country two systems thingee didn't last through the Covid epidemic. So I have much less confidence investing through Hong Kong than I did before. I have very little confidence in mainland Chinese Stocks.

Of course, the markets know all of this. I do wonder if there is a lot of denial over what has been happening. There are things folks don't want to think about. It's a big shame as I have wanted to visit there for a long time and I believe there is great potential there. Culture, food, architecture, many wonderful things to see. Just see certain things going certain directions in a way that just can't be good for outsiders trying to invest there.

Reminds me of a story of my father and his dad. They watched as scrap metal was being loaded on ships to be sent to a country we would be at war with fairly soon after dad and grandfather witnessed this. Grandfather made the comment that all that scrap metal we were shipping to this country would be used against us. This was probably, I don't know, maybe 1938 or 1939 or 1940. I am sure this crossed the mind of others who knew of this but it was too terrible to want to think about.

The story with China that no one wants to think about is that foreign investment could just be nationalized with an edict from leadership. What you thought was yours now belongs to us, and there isn't a thing you can do about it. All with the stroke of a pen. Likely? Maybe not. There would be repercussions. But sometimes a national leader makes decisions like these not caring about the consequences. Sometimes leaders do such things simply because they can.

That being said, I have maintained my Emerging Markets investments, which of course are weighted something like 30% China. I have given thought to substituting the Emerging Markets ex-China ETF for my Emerging Market Funds but I have not made the switch. I would love to be a China bull. Their people deserve growing prosperity and living standards. I truly want the best for their country and its people. From the standpoint of an outsider who has smaller amounts of investments there, certain things give me pause.
There's a book "The Thucydides Trap" about all this. And the criticism from classical scholars, as opposed to political scientists, is that the analogy is misused. The US is not Athens (it happens to look more like Republican Rome, in fact, but there's probably a better analogy). China is not Sparta.

Rather than debate that -- and it's outside my areas of knowledge -- I would make a historical observation.

Japan's invasion of China, first 1931 and then 1937, which was really the start of WW2 (along with the Spanish Civil War), was motivated by a desire to emulate imperialism as western powers had practised for centuries. Towards China but also other territories. To secure land for expansion and to secure raw materials.

The Japanese were very offended by the refusal of the Treaty of Versailles in 1919 to recognise the rights of non-white peoples. The imperial powers edited out those clauses. Japan's view was that since the British, Germans, French, Dutch, Americans, Spanish, Portugese had all had empires in Asia, why shouldn't they?

So on land a large number of Japanese were settled in Manchuria (and brutally evicted or killed at the end of WW2). Japanese strategy evolved that they would seize the Dutch and British colonies of Indonesia and Malaya, and thus secure supplies of vitally needed critical raw materials: oil, rubber (you can't have vehicles and aircraft without rubber tires & synthetic rubber wasn't yet a thing), tin.

To do so, they would have an exposed lines of supply via the Philippines. Which was a US possession. So they concluded they would have to go to war with the USA to protect their supply lines to their new territories.

When the Japanese pushed further into China in 1940-41, and took control of French Indochina (Vichy France was a rump state under German domination, so although there was fighting, France was in no position to stage a war with Germany's ally, Japan), was when the US finally reacted.

FDR embargoed oil, and scrap metal.

Japan was then on a fuse. The Imperial Japanese Navy estimated they had about 18 months of fuel left. But the loss of scrap metal supplies also risked crippling Japanese industry. The plan to attack Pearl Harbor and neutralise the US Pacific Fleet as a threat, evolved from that moment.

So there you have it. Scrap metal was more important than your grandfather perhaps knew. It was an actual cause of the war. That conflict might have been inevitable (both the US and Japan had been planning for it since the 1920s at least). But scrap metal was one of the sparks.
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Re: MSCI EM excluding China

Post by nisiprius »

It was only a few years ago that everyone was piling in on China, and people were berating Vanguard because its funds (tracked an index which) excluded China A shares.

So the politics has changed? So what? That goes with the territory in emerging markets. I'm quoting language from Vanguard's prospectus and underlining some of it. If you decide to invest in emerging markets, you have decided to accept
Emerging markets risk, which is the chance that the stocks of companies located in emerging markets will be substantially more volatile, and substantially less liquid, than the stocks of companies located in more developed foreign markets because, among other factors, emerging markets can have greater custodial and operational risks; less developed legal, tax, regulatory, financial reporting, accounting, and recordkeeping systems; and greater political, social, and economic instability than developed markets.
You don't like China? China is looking less like a US rival and more like an adversary? "Foreign investment could just be nationalized with an edict from leadership?" Of course it could. That's what "greater political, social, and economic instability" means. That's what you are signing onto. That's the risk for which you hope to get the reward.

I don't agree with the financial reasoning behind ideas like "I want the whole market, sort of, but not the FAANGs" or "I want the whole world, sort of, but not China." If 60% of your portfolio is stocks, and half of your stocks are international, and a third of your international stocks are emerging markets, and a third of your emerging market stocks are Chinese, then 60% x ½ x ⅓ x ⅓ = 3.3% of your portfolio is in Chinese stocks. That isn't going to make or break a portfolio. If Chinese stocks went to zero, perhaps in the same way Russian stocks have, that would be a -3.3% loss. You can lose that much in a bad week in the US market. If whatever made Chinese stocks go to zero had global knock-on effects, you would experience that effect whether or not you were holding actual Chinese stocks.

Your portfolio succeeds or fails based on the big-percentage components, not the slivers.
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Re: MSCI EM excluding China

Post by nedsaid »

nisiprius wrote: Mon Jan 23, 2023 6:18 am It was only a few years ago that everyone was piling in on China, and people were berating Vanguard because its funds (tracked an index which) excluded China A shares.

So the politics has changed? So what? That goes with the territory in emerging markets. I'm quoting language from Vanguard's prospectus and underlining some of it. If you decide to invest in emerging markets, you have decided to accept
Emerging markets risk, which is the chance that the stocks of companies located in emerging markets will be substantially more volatile, and substantially less liquid, than the stocks of companies located in more developed foreign markets because, among other factors, emerging markets can have greater custodial and operational risks; less developed legal, tax, regulatory, financial reporting, accounting, and recordkeeping systems; and greater political, social, and economic instability than developed markets.
You don't like China? China is looking less like a US rival and more like an adversary? "Foreign investment could just be nationalized with an edict from leadership?" Of course it could. That's what "greater political, social, and economic instability" means. That's what you are signing onto. That's the risk for which you hope to get the reward.

I don't agree with the financial reasoning behind ideas like "I want the whole market, sort of, but not the FAANGs" or "I want the whole world, sort of, but not China." If 60% of your portfolio is stocks, and half of your stocks are international, and a third of your international stocks are emerging markets, and a third of your emerging market stocks are Chinese, then 60% x ½ x ⅓ x ⅓ = 3.3% of your portfolio is in Chinese stocks. That isn't going to make or break a portfolio. If Chinese stocks went to zero, perhaps in the same way Russian stocks have, that would be a -3.3% loss. You can lose that much in a bad week in the US market. If whatever made Chinese stocks go to zero had global knock-on effects, you would experience that effect whether or not you were holding actual Chinese stocks.

Your portfolio succeeds or fails based on the big-percentage components, not the slivers.
The fact that Chinese Stocks are 3.3% of Global portfolio as described above is a reason that I haven't switched my Emerging Markets investments to an Emerging Markets ex-China ETF. For me, the effect would be less since my International allocation is probably 27% or 28% of my stocks. There would also be additional costs. I am probably a bit overweighted to Emerging Markets relative to Developed Markets, so I suppose China is less than 2% of my Stocks. I was surprised when I did a Morningstar X-Ray of my portfolio that two Chinese Stocks, Alibaba and Tencent, showed up in my top 25 stocks. Taiwan Semiconductor was listed at number 15. More recently, I ran the analysis, Taiwan Semiconductor was still there but the two mainland Chinese Stocks had dropped out.

I have been in the past, a very enthusiastic Emerging Markets advocate, my enthusiasm for Emerging Markets and REITs have cooled but I have not changed my portfolio that much. Some time ago, I trimmed my REITs a bit but have left Emerging Markets alone.

Certainly, I use the broad index funds in my portfolio but I have chosen to have certain tilts. Despite my enthusiasm for International investments, I am still primarily a U.S. investor. I have Size and Value tilts but they are relatively mild compared to what some factor advocates recommend. That is the way that I have chosen to invest.

I don't know, investors just cannot ignore the facts on the ground. I have concerns about certain things around the world, it isn't limited to just China. Have concerns about a war in Europe, have concerns about events happening right here in the good old USA. Still, I realize that markets are remarkably resilient through very bad events and crisis that occur. So I am not constantly changing my portfolio with that in mind. What I will say, as a Value oriented investor, I have not consciously loaded up on Chinese, Russian, and Turkish Stocks because they are very cheap. I believe these to be cheap for very good reasons.

I made adjustments with my Bonds, I bought more TIPS recently within the fixed income portion of my portfolio. I was looking at the long term prospects of inflation running higher than we are used to. My suspicion is that we will see 3-4% inflation in the future rather than 1%-2% with whiffs of deflation. I responded to facts on the ground and I finally did something I had been thinking about for a long time. So I made a mild bet, the consequences for being wrong are small here, thus the odds seemed in my favor.

My own thinking is that investors should still have representation of Emerging Markets within their portfolios, I just see no reason for overweighting a portfolio with that asset class, market weights would be fine. My enthusiasm has cooled but I am not out.
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Re: MSCI EM excluding China

Post by nedsaid »

Valuethinker wrote: Mon Jan 23, 2023 2:02 am
nedsaid wrote: Sun Jan 22, 2023 10:06 pm
tre3sori wrote: Sun Jan 22, 2023 5:04 am
tradez wrote: Sat Jan 21, 2023 5:43 pm I am bullish on emerging markets in the long term (mainly India), but less optimistic about China.
A question to ask: What do you know MORE about China than the market (i.e. the aggregate of all these private and professional investors out there)? With your knowledge is it more or less likely that you find the right weight for China compared to the market? If you come to the conclusion that it is probably less likely that with your limited knowledge you find the right weight of China than you probably should stick with products like Vanguard FTSE All-World or iShares MSCI ACWI. You could tilt towards India by adding a (rather expensive :( ) iShares MSCI India ETF.
Not against China, the country or its people. There is just something about the rule of law and respect for intellectual property. If you own a mainland Chinese stock, what, if anything, do you really own? I really thought the Hong Kong Stock Market was a great proxy for investing directly in China, now Hong Kong is just another Chinese city. The one country two systems thingee didn't last through the Covid epidemic. So I have much less confidence investing through Hong Kong than I did before. I have very little confidence in mainland Chinese Stocks.

Of course, the markets know all of this. I do wonder if there is a lot of denial over what has been happening. There are things folks don't want to think about. It's a big shame as I have wanted to visit there for a long time and I believe there is great potential there. Culture, food, architecture, many wonderful things to see. Just see certain things going certain directions in a way that just can't be good for outsiders trying to invest there.

Reminds me of a story of my father and his dad. They watched as scrap metal was being loaded on ships to be sent to a country we would be at war with fairly soon after dad and grandfather witnessed this. Grandfather made the comment that all that scrap metal we were shipping to this country would be used against us. This was probably, I don't know, maybe 1938 or 1939 or 1940. I am sure this crossed the mind of others who knew of this but it was too terrible to want to think about.

The story with China that no one wants to think about is that foreign investment could just be nationalized with an edict from leadership. What you thought was yours now belongs to us, and there isn't a thing you can do about it. All with the stroke of a pen. Likely? Maybe not. There would be repercussions. But sometimes a national leader makes decisions like these not caring about the consequences. Sometimes leaders do such things simply because they can.

That being said, I have maintained my Emerging Markets investments, which of course are weighted something like 30% China. I have given thought to substituting the Emerging Markets ex-China ETF for my Emerging Market Funds but I have not made the switch. I would love to be a China bull. Their people deserve growing prosperity and living standards. I truly want the best for their country and its people. From the standpoint of an outsider who has smaller amounts of investments there, certain things give me pause.
There's a book "The Thucydides Trap" about all this. And the criticism from classical scholars, as opposed to political scientists, is that the analogy is misused. The US is not Athens (it happens to look more like Republican Rome, in fact, but there's probably a better analogy). China is not Sparta.

Rather than debate that -- and it's outside my areas of knowledge -- I would make a historical observation.

Japan's invasion of China, first 1931 and then 1937, which was really the start of WW2 (along with the Spanish Civil War), was motivated by a desire to emulate imperialism as western powers had practised for centuries. Towards China but also other territories. To secure land for expansion and to secure raw materials.

The Japanese were very offended by the refusal of the Treaty of Versailles in 1919 to recognise the rights of non-white peoples. The imperial powers edited out those clauses. Japan's view was that since the British, Germans, French, Dutch, Americans, Spanish, Portugese had all had empires in Asia, why shouldn't they?

So on land a large number of Japanese were settled in Manchuria (and brutally evicted or killed at the end of WW2). Japanese strategy evolved that they would seize the Dutch and British colonies of Indonesia and Malaya, and thus secure supplies of vitally needed critical raw materials: oil, rubber (you can't have vehicles and aircraft without rubber tires & synthetic rubber wasn't yet a thing), tin.

To do so, they would have an exposed lines of supply via the Philippines. Which was a US possession. So they concluded they would have to go to war with the USA to protect their supply lines to their new territories.

When the Japanese pushed further into China in 1940-41, and took control of French Indochina (Vichy France was a rump state under German domination, so although there was fighting, France was in no position to stage a war with Germany's ally, Japan), was when the US finally reacted.

FDR embargoed oil, and scrap metal.

Japan was then on a fuse. The Imperial Japanese Navy estimated they had about 18 months of fuel left. But the loss of scrap metal supplies also risked crippling Japanese industry. The plan to attack Pearl Harbor and neutralise the US Pacific Fleet as a threat, evolved from that moment.

So there you have it. Scrap metal was more important than your grandfather perhaps knew. It was an actual cause of the war. That conflict might have been inevitable (both the US and Japan had been planning for it since the 1920s at least). But scrap metal was one of the sparks.
Thank you for the historical perspective. The purpose of my post wasn't to dump on a couple of other nations but to illustrate geopolitical risks. As a side note, I visited Japan back in 2002, mostly around Osaka and Kyoto, I took a side trip to Hiroshima. It was an amazing experience.

My father's parents had high school educations but were bright people. Grandfather had a career in sales and later business, he was very interested in emerging technologies which in his day were radio and aviation. He was enthusiastic about television when it came out. Grandmother had an interest in architecture and worked in the family business. Interesting, but they were pretty good amateur economists, they understood supply and demand and they well understood public sentiment. When you sell products and services and when you run a business, you understand public confidence very well, something that I believe modern economists vastly underestimate.

I don't think my father's parents were deep geopolitical thinkers but they made an effort to inform themselves. Grandad worked as an electrician in a shipyard during WWII that made the Liberty ships, found out later he was a foreman.

So all of this shows, in a small way, how we are all interconnected.
A fool and his money are good for business.
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Re: MSCI EM excluding China

Post by nisiprius »

nedsaid wrote: Mon Jan 23, 2023 10:41 am The fact that Chinese Stocks are 3.3% of Global portfolio as described above is a reason that I haven't switched my Emerging Markets investments to an Emerging Markets ex-China ETF. For me, the effect would be less since my International allocation is probably 27% or 28% of my stocks.
For me, even less because I'm retired and conservative and have much less than 60% in stocks, less than 27% my stocks international, and hold VTIAX and thus am not overweighting emerging markets. In my example I intentionally leaned aggressive.
...I don't know, investors just cannot ignore the facts on the ground. I have concerns about certain things around the world, it isn't limited to just China. Have concerns about a war in Europe, have concerns about events happening right here in the good old USA.
I do, too.

The problem, which seasoned investors should be familiar with, is that there is always very serious stuff going on which you seemingly "just can't ignore." If you watch financial media and read quarterly freebie magazines from your brokerage, you will be changing course every six months. But even if you firmly resolve to act only on things you "just can't ignore," you will still be making changes every three years or so.

You will constantly be in a state of "OMG I have way too much in X, I've got to cut back X hard and I have to do it quickly" and "OMG I don't have enough X, I have to scramble and buy a lot to catch up."

How much harm does this flailing around, constant overcorrections setting the stage for the next overcorrection really do? Despite Boglehead rhetoric, possibly not all that much. It certainly makes you feel insecure and sets you up for mild exploitation by advisors who want to create dependence, or purveyors of ETFs that charge 0.46% to track an index containing only fifty stocks, etc.

But, yes, if you choose to "stay the course" that is a decision to ignore things you "just cannot ignore."
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nedsaid
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Re: MSCI EM excluding China

Post by nedsaid »

nisiprius wrote: Mon Jan 23, 2023 11:40 am
nedsaid wrote: Mon Jan 23, 2023 10:41 am The fact that Chinese Stocks are 3.3% of Global portfolio as described above is a reason that I haven't switched my Emerging Markets investments to an Emerging Markets ex-China ETF. For me, the effect would be less since my International allocation is probably 27% or 28% of my stocks.
For me, even less because I'm retired and conservative and have much less than 60% in stocks, less than 27% my stocks international, and hold VTIAX and thus am not overweighting emerging markets. In my example I intentionally leaned aggressive.
...I don't know, investors just cannot ignore the facts on the ground. I have concerns about certain things around the world, it isn't limited to just China. Have concerns about a war in Europe, have concerns about events happening right here in the good old USA.
I do, too.

The problem, which seasoned investors should be familiar with, is that there is always very serious stuff going on which you seemingly "just can't ignore." If you watch financial media and read quarterly freebie magazines from your brokerage, you will be changing course every six months. But even if you firmly resolve to act only on things you "just can't ignore," you will still be making changes every three years or so.

You will constantly be in a state of "OMG I have way too much in X, I've got to cut back X hard and I have to do it quickly" and "OMG I don't have enough X, I have to scramble and buy a lot to catch up."

How much harm does this flailing around, constant overcorrections setting the stage for the next overcorrection really do? Despite Boglehead rhetoric, possibly not all that much. It certainly makes you feel insecure and sets you up for mild exploitation by advisors who want to create dependence, or purveyors of ETFs that charge 0.46% to track an index containing only fifty stocks, etc.

But, yes, if you choose to "stay the course" that is a decision to ignore things you "just cannot ignore."
We are in general agreement here. For the most part, I leave my portfolio alone. The recent move to TIPS was something I had been thinking about for a long time anyway, more recent events and heckfire and brimstone warnings from Bill Bernstein gave me motivation to move. But it pretty much was a bonds for bonds switch with small and subtle changes in credit quality and duration. It wasn't like I was making huge changes in portfolio composition.

With Emerging Markets, I have done nothing. Zero, zippo, nada. I don't sit with my fingers on the mouse ready to move money in and out of investments according to the daily news and my emotional state. It takes a lot to get me to make a change and in any case I allow time for reflection, sometimes years. So it isn't like I am Mr. Excitement around here. On the other hand, I will move if sufficiently motivated.

I have figured that making changes with my Emerging Market investments isn't worth the effort, because as you pointed out, most U.S. investors exposure to mainland Chinese Stocks is pretty limited. I am cheap, can't help but notice that I would pay a higher expense ratio with the ex-China EM ETF than I would with the Fidelity EM Index Fund.

So again, we are in violent agreement. Thanks for pointing things out, it is informative for lurkers and people newer to the forum.
A fool and his money are good for business.
Valuethinker
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Re: MSCI EM excluding China

Post by Valuethinker »



So there you have it. Scrap metal was more important than your grandfather perhaps knew. It was an actual cause of the war. That conflict might have been inevitable (both the US and Japan had been planning for it since the 1920s at least). But scrap metal was one of the sparks.
Thank you for the historical perspective. The purpose of my post wasn't to dump on a couple of other nations but to illustrate geopolitical risks. As a side note, I visited Japan back in 2002, mostly around Osaka and Kyoto, I took a side trip to Hiroshima. It was an amazing experience.

My father's parents had high school educations but were bright people. Grandfather had a career in sales and later business, he was very interested in emerging technologies which in his day were radio and aviation. He was enthusiastic about television when it came out. Grandmother had an interest in architecture and worked in the family business. Interesting, but they were pretty good amateur economists, they understood supply and demand and they well understood public sentiment. When you sell products and services and when you run a business, you understand public confidence very well, something that I believe modern economists vastly underestimate.

I don't think my father's parents were deep geopolitical thinkers but they made an effort to inform themselves. Grandad worked as an electrician in a shipyard during WWII that made the Liberty ships, found out later he was a foreman.

So all of this shows, in a small way, how we are all interconnected.
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I agree about interconnection.

Previous generations were as smart as we were they just didn't have the same opportunities for learning (sometimes). OTOH my grandfather (who was a leatherworker and a shopkeeper) was quite skilled with his hands. Part of my father's university education (in engineering) was making things with machine tools etc. I wouldn't have the foggiest what to do with most of the bits of a modern car-- the era of DIY car maintenance has, for most people, long past.

The important thing is whether we are facing the existential challenges squarely face on-- that problem is handed to each generation. For various reasons I think we are configured as societies not to do so. History tells me that civilisations die if they do not adapt to changing conditions.

https://www.amazon.co.uk/Ancient-Worlds ... B0042HOPYO

I am rewatching this right now. History of civilisation from the beginning (The Great Courses do something similar). I don't know if it's available in the USA. But he's a really good presenter and he was able to travel to Syria and Iraq before the latest round of civil wars.

On the other hand, medieval civilisation died very quickly after 1346-- the Black Death reached Europe and killed at least 1 in 3 people alive (1 in 2 perhaps in some places). And medieval civilisation never really recovered. But what came after was the Renaissance.
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