A RECOVERY in Chinese stocks following a sell-off at the start of last week underscored how investors in emerging markets have few alternatives that are as big and liquid.

After ditching the Asian nation’s assets amid the turmoil, there are already signs that folks are creeping back. Traders piled a net US$975 million into Chinese exchange-traded funds (ETFs) last week, more than all other developing nations combined.

The sheer breadth of the China market and its outsized share in key indexes means global money managers often have no choice but to look past bouts of turbulence and maintain exposure.

While the latest manufacturing data out of China point to a slowdown in activity, the nascent rebound in the nation’s battered equities may have room to run if funds begin to rebuild their positions and liquidity injections restore calm in financial markets.

At the height of last week’s panic, Hong Kong’s Hang Seng index was down almost 10 percent from July 23’s close. Technology giant Tencent Holdings Ltd. shed about a fifth of its value and Meituan tumbled as much as 30 percent in the week.

But as the dust settles, focus is already turning to the money that eventually poured back into the country’s assets after a stock-market bust in 2015 and amid government efforts to stem steep declines in 2018.

China makes up about one-third of MSCI Inc.’s emerging-market index, which means that it’s almost guaranteed to attract funds from money managers who track the benchmark. The promise of juicy gains will only help — equity investors in China pocketed twice the average return across the developing world over the past decade.

“If one wants out, one could divest from China and invest the proceeds pro-rata across other countries,” said Gustavo Medeiros, London-based deputy head of research at Ashmore Group Plc. “But this is extreme.”

The economy’s closed nature can also insulate assets from volatility, with some investors even snapping up government bonds as an alternative to U.S. Treasuries. Inflows drove the yield on 10-year Chinese benchmark debt down almost 30 basis points this year, the most among major markets.

So far in 2021, total assets invested in China via ETFs reached US$252 billion, compared with about US$10 billion in Brazil and US$2.5 billion in South Africa. (SD-Agencies)