Country of Domicile or Economic Exposure?
Traditional investment asset allocation exposure has been built upon the securities country of domicile. So, if you were looking to gain exposure to China, you would buy securities of companies domiciled in China.
However, a more interesting approach is beginning to go more mainstream, where asset allocation is now built not upon domicile, but upon how much revenue a specific company generates from a certain region or country. This means you can gain exposure to China by companies domiciled in other countries that derive significant sources of their revenue from China.
The idea is not new, but its acceptance is growing. There are a number of challenges in building portfolios based purely on economic exposure instead of country of domicile. The most important one is that companies financial disclosures don’t consistently provide the country level revenue and cost data needed to properly assess their economic exposure for the countries with which they do business.
If interested, check out this piece put out by the Capital Group that highlights this trend in the investment world and the current challenges:
https://www.americanfunds.com/pdf/mfgewp-009_invinsiwp0413.pdf