The biggest risk to emerging markets isn't Turkey — it's China

While investors have been focusing on Turkey as a source of contagion in emerging markets amid a plunging lira and political turmoil, we see the outlook for China as a much bigger problem.

China represents 25 percent of the MSCI Emerging Markets Index, so what happens in China doesn't exactly stay in China. It has a more outsized impact than Turkey on investors; Turkey accounts for just 0.5 percent of the index.

With the trade war looming, China's outlook has been called into question. Concern of contagion is mounting as Chinese technology stocks are stumbling in the face of continued threats out of Washington and Tencent's big earnings miss.

King dollar weighs

Another chief concern for China is the strengthening U.S. dollar.

Until China's wage growth picks up meaningfully to increase domestic consumption and demand, China remains dependent on its exports, which are hurt by a strong dollar. That impact shows few signs of abating, since the dollar's outlook remains strong in the midst of the Federal Reserve's tightening path.

Furthermore, as interest rates keep rising in the U.S., China is vulnerable to capital flight from domestic investors.

We believe these concerns are worth watching, and remain overweight in U.S. equities until we have further visibility into how the trade war will play out for China.

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Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

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