Catherine Yoshimoto
State mandates drive growing interest in emerging markets ex China
Multiple US states have now enacted laws restricting or mandating divestment from China in public pension funds and related investments. In aggregate, experts estimate that state pension funds have invested $68 billion in China from 2021 through 2023,[Note1] and several of the recent divestment mandates represent significant pools of capital.
Indiana was among the first movers, requiring its public retirement system to unwind $1.2 billion in Chinese holdings by 2028—a task already completed by mid-2024.[Note2] In Texas, Governor Greg Abbott issued an executive order in late 2024 directing state agencies to halt new Chinese investments and divest existing ones, impacting approximately $1.4 billion in assets held by the Teachers Retirement System of Texas.[Note3]
In the US, scrutiny of Chinese exposure is widening across the board. Beyond those already enacting laws, additional states have debated similar measures, citing bipartisan concerns ranging from national security to fiduciary responsibility. The scope of these efforts extends beyond pensions, with restrictions on areas such as Chinese-made technology, farmland purchases, and procurement contracts. In total, more than 20 states now have some form of restriction in place.
Fundamental dynamics may also support ex-China allocations: Excluding China can reduce benchmark concentration and expand exposure to other fast-growing economies benefiting from macroeconomic tailwinds. For many investors, these factors accompany souring sentiment toward China itself, where regulatory uncertainty, geopolitical friction and slower economic growth have recently weighed on investor confidence.
Implications for investors
The FTSE Emerging ex China Index reflects this shift in certain investors’ priorities, providing a clearer view of emerging markets beyond China.
The index has provided higher returns than the broader FTSE Emerging Index over the three and five years to end-July 2025, while maintaining a similar volatility profile—delivering differentiated exposure without materially higher risk.
For certain investors, the case for emerging markets ex China aligns with evolving policy and fiduciary considerations, while also offering performance on its own merits. For market participants who only want to reduce exposure to companies controlled by Chinese state entities, rather than remove their entire exposure to China, FTSE Russell also publishes global or emerging indices that exclude Chinese or Hong Kong state-owned enterprises (SOEs). FTSE Russell remains committed to serving as a global index partner for a changing world, providing transparent tools that help investors navigate a changing investment landscape.
Sources
[1] Future Union, Pensions, accessed August 30, 2025, Future Union, as cited in “‘Circle the wagons’ — State pension funds are dumping Chinese investments,” Politico, July 26, 2024. https://www.politico.com/news/2024/07/26/states-china-pensions-00171437 | Back to Note 1
[2] Office of the Indiana State Comptroller and Indiana State Treasurer, Comptroller Nieshalla and Treasurer Elliott Applaud Pension Plan’s Fast Action to Divest Assets from China, press release, July 31, 2024, Indiana State Government, accessed August 30, 2025. https://www.in.gov/comptroller/files/Comptroller-Nieshalla-and-Treasurer-Elliott-Applaud-Pension-Plans-Fast-Action-to-Divest-Assets-from-China.pdf | Back to Note 2
[3] Reuters, Texas Governor Orders State Agencies to Sell China Assets, published November 22, 2024, Reuters, accessed August 30, 2025. https://www.reuters.com/markets/texas-governor-orders-state-agencies-divest-china-assets-2024-11-22/ | Back to Note 3
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