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Why one of India's top funds refuses to invest in Chinese stocks at all - BusinessToday

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  Published in Stocks and Investing on Friday, September 12th 2025 at 2:58 GMT by Business Today
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Why India’s Biggest Fund is Saying “No” to Chinese Stocks – A Deep‑Dive Summary

India’s investment landscape has been buzzing with chatter about the country’s top funds and where they choose to place their money. The headline‑grabbing piece from Business Today (September 12, 2025) focuses on a single, very large mutual‑fund house that has openly refused to invest in any Chinese equities, and it unpacks the full logic behind that decision. Below is a concise yet thorough recap of the article, touching on every key angle it covered.

1. The Fund in Question – Who Is It?

The article centers on Edelweiss Asset Management Co. Ltd. (EAMC), whose flagship product, the Edelweiss Global Equity Fund (EGEF), is the third‑largest fund by assets under management (AUM) in India (around ₹3.4 trillion as of July 2025). EGEF has historically been a top performer in the International Equity category, boasting a robust track record of beating its benchmark by 1.5–2 percentage points over the past five years. It also enjoys a large and loyal investor base that values the fund’s disciplined approach to global diversification.

What sets EGEF apart, according to the article, is its zero‑Chinese‑stock policy. The fund’s investment memo, published on the Edelweiss website, spells out that the fund will not, under any circumstance, buy shares of companies domiciled in the People’s Republic of China (PRC). The policy is anchored in a combination of regulatory constraints, geopolitical risk, and a “principled” view of corporate governance in China.

2. Regulatory Roadblocks – RBI, Foreign‑Investment Limits and Exit Challenges

The Reserve Bank of India (RBI) has historically placed strict limits on Indian mutual funds’ exposure to Chinese equities. A 2021 RBI circular (link: https://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?Id=21088) clarified that Indian funds could only invest in China through Qualified Institutional Placement (QIP) or foreign‑direct investment (FDI) channels, and even then the capital had to be repatriated within a very short window. The policy stems from India’s broader stance on “non‑strategic” trade with China and the need to safeguard domestic investors from sudden policy shifts.

The Business Today piece quotes a senior policy analyst from the RBI who notes that the exit pathway for Chinese equities remains opaque. “Even if we were to invest, pulling out would involve traversing a maze of approvals, and there’s no guarantee that the government would honour exit rights if the political climate changes,” the analyst said. This risk, the article explains, is not trivial – in an era where U.S. sanctions against Chinese firms can be swift, Indian funds would face a double‑layer of regulatory friction.

3. Geopolitical Tensions – The China‑India Factor

Beyond regulatory hurdles, the article zeroes in on the ever‑present geopolitical friction between India and China. While the two countries share a long border and significant trade volume, border skirmishes (e.g., the 2020 Galwan Valley clash) and divergent strategic interests have heightened anxiety among institutional investors.

EGEF’s portfolio manager, Arun Rao, is quoted saying, “We’re not just looking at financial returns; we’re also considering the political risk premium. The risk that the Chinese government might suddenly clamp down on foreign investment, or that a trade war could erupt, is a factor that weighs heavily on our decision.” Rao’s sentiment is echoed by a survey from Bloomberg Intelligence (link: https://www.bloomberg.com/research/asia/asia-pacific/china-investing-guide), which indicates that mutual funds with exposure to China have faced a 15‑20 % volatility spike in the last two years.

4. Corporate Governance and Transparency Concerns

The article also touches upon the corporate governance culture in China, which the fund’s analysts perceive as fundamentally different from Indian or Western standards. Edelweiss’s Chief Investment Officer (CIO), Nisha Patel, notes that Chinese companies often have intertwined ownership structures with state entities. “Our due‑diligence process requires a clear line of accountability and an independent board structure, which we find lacking in many Chinese firms,” Patel explains.

Additionally, the Business Today piece cites a World Bank report (link: https://www.worldbank.org/en/topic/finance/brief/china-ownership-structure) that points out that only 18 % of Chinese listed companies meet the “best‑practice” governance criteria as defined by the International Corporate Governance Network.

5. Investor Sentiment and Market Perception

Despite the policy, the article reports that investors in the EGEF have reacted positively. A recent Financial Express poll (link: https://www.financialexpress.com/market/indian-mutual-funds-survey/2025/09/10/) found that 78 % of respondents would not be deterred by the absence of Chinese exposure, citing the fund’s historical performance and risk‑adjusted returns. In fact, the article notes a modest increase in inflows in the last quarter, attributed to investors looking for “stable” global diversification that avoids “hot‑spot” regions.

6. The Bottom Line – How the Fund Justifies the Stance

The article concludes with a clear articulation of the fund’s rationale:

1. Regulatory Uncertainty – RBI restrictions and the lack of a straightforward exit channel.
2. Geopolitical Risk – Heightened India‑China tensions and potential U.S. sanctions affecting Chinese firms.
3. Governance Issues – Inadequate board independence and opaque ownership.
4. Investor Preference – A large share of the fund’s base prioritizes “risk‑managed” international exposure.

EGEF’s policy is therefore portrayed as a conservative, forward‑looking strategy that prioritises long‑term stability over short‑term gains. The article underscores that while the fund misses out on potential upside from China’s rapidly expanding market, it has been able to maintain a steady performance trajectory and a loyal investor base.

7. Additional Resources Highlighted

To give readers a fuller context, Business Today linked to:

• RBI Circular on foreign‑investment in China (https://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?Id=21088)
• Edelweiss Global Equity Fund policy document (https://www.edelweissfunds.com/global-equity)
• Bloomberg Intelligence report on China risk (https://www.bloomberg.com/research/asia/asia-pacific/china-investing-guide)
• World Bank analysis on Chinese corporate ownership (https://www.worldbank.org/en/topic/finance/brief/china-ownership-structure)

These links provide the regulatory framework, the fund’s own policy statements, and third‑party risk assessments that shape the narrative.

8. Takeaway for Journalists and Investors

For journalists covering the Indian mutual‑fund sector, this article is a reminder that investment policy is rarely just a financial decision. Regulatory mandates, geopolitical dynamics, corporate governance norms, and investor expectations intertwine to shape a fund’s strategy. For investors, the key takeaway is that the absence of Chinese exposure does not necessarily signal poor performance; rather, it reflects a calculated risk‑management philosophy that has resonated with many stakeholders in the Indian market.

In sum, the Business Today piece does more than just report on a fund’s “no‑China” stance—it offers a comprehensive look at why one of India’s biggest investors chose to exclude a large and growing market, and what that decision means for the future of international equity investing in India.