By Chris Zani, Portfolio Manager Quantitative Equity at PGIM

When I arrived in Beijing, I was surprised - not by how organized, efficient and well-structured everything was, nor by the number of international professionals I encountered, including many Americans working between China and the US. These aspects of China’s rise are well known. What surprised me was the transition of Beijing into a central hub of government and finance.

Often, a country’s political and its financial center are in different cities. Switzerland is a good example: Bern stands for politics, Zurich for finance and business, while Geneva plays a central role in diplomacy, international organisations and private wealth. This division of roles feels natural from a Swiss perspective. In many emerging markets, we see similar patterns: Brazil is a case in point: although it is a highly interesting emerging economy, I have never even been to its capital, Brasília. There was no need, because São Paulo and Rio de Janeiro are where most of the country’s business activity takes place.

Beijing as a New Financial Center

Similar patterns can be observed in India and South Africa, while some EM countries do combine their political and financial centres, such as South Korea or Russia. For this trip, my hotel was literally on Beijing’s Financial Street — sometimes referred to as the «Wall Street of China» — and this neighbourhood alone is a good reminder of the changes, the country went through over the years. At first glance, one might think of China as another example of a geographic separation between political and financial centres, with Shanghai and Hong Kong serving as the main financial hubs.

Yet between sleek skyscrapers and minimalist plazas, state institutions, pension funds and international banks, Beijing’s financial district has risen in relevance in China’s financial landscape, not just because of its proximity to where decisions are being made on a political level.

Emerging Markets Are not a Uniform Asset Class

Observations like these are a reminder that, although «emerging markets» are often treated as a single category, they are anything but a homogeneous croup of countries. For Swiss Investors, used to a highly international, institutionally stable and well-regulated investment environment, the dispersion within emerging markets is particularly important. These markets may often share certain features, such as faster growth, expanding middle classes and the potential for higher returns.

Chris Zani from PGIM. (Image: Courtesy)

Yet they usually differ substantially in their political systems, financial structures and industrial positioning. Take BRICS as an example: while China is firmly positioned within the AI wave, Brazil is more closely associated with energy, and India has a stronger focus on industrials. In the context of the AI hyperscaler value chain, Korea and Taiwan are more comparable to China than the classic BRICS markets are. These distinctions matter for investment decisions, as does the heightened volatility that also characterizes emerging markets. This is where the art and science of stock selection become especially important, while broad country bets can carry significant risks.

Why Quantitative Strategies Have an Advantage

Because of these uncertainties, quantitative approaches can be particularly useful in emerging-market investing. They can help address the risks associated with these markets in several ways. First, quantitative strategies are often better suited to markets with higher transaction costs. They can also help manage benchmark risks more systematically. Finally, while country-level bets can be difficult in emerging markets, stock selection also carries risks, since many emerging markets are highly concentrated. Quantitative analysis can help here as well, enabling investors to deviate from benchmarks in a controlled and disciplined manner rather than making binary decisions.

Diversification with a Sense of Proportion

In short, emerging markets offer a wide range of attractive investment opportunities. But in a market characterized by a lower information ratio, influenced by geopolitical uncertainty, a quantitative approach can support making more disciplined and better-informed decisions which can ultimately benefit investors aiming to diversify their portfolio and add an asset class with an attractive risk/return ratio.