- Emerging markets could offer investors the chance to enrich their portfolios with a diverse and exciting source of growth opportunities, particularly when paired with the liquidity and accessibility of ETFs
- However, a significant and increasing proportion of MSCI Emerging Markets indices’ exposure is to Chinese stocks
- This regional concentration has been growing apace since MSCI increased the Chinese A Share allocation from 5-20% in 20191
By Daniel Dornel, Head of ETF Research
There is a myriad of reasons to consider constructing an emerging markets (EM) portfolio from a long-term perspective, including numerous economic and demographic advantages – they are the chief drivers of overall global growth, accounting for 61% of global GDP in 2026.2
They are also enjoying rapid industrialisation, house most of the world’s population, have a young workforce – the median age of India’s population is under 30 – and enjoy a rapidly growing middle class.3
One analysis estimates that by 2030, most emerging market consumers, at 75%, will be between the ages of 15 and 34 – and will be more optimistic about the economy and willing to spend.4
The economic growth trajectory of EMs has persisted, albeit at a somewhat slowed pace compared to previous years, largely due to ongoing geopolitical volatility and trade policies. The International Monetary Fund expects emerging market and developing economies to now grow by 3.1% in 2026 and 3.2% in 2027.5
Strong prospects
Companies in countries like India, China, Indonesia, Mexico and Saudi Arabia tend to enjoy increased revenues when developed market growth continues. This not only has positive effects on these countries’ domestic economies but also provides support for direct investment into their equity and corporate bond assets.
Choosing an ETF which passively tracks the MSCI Emerging Markets® Index can offer investors instant exposure to a diverse range of potential opportunities across developing markets.
While the growth potential of emerging markets equities is best regarded as a long-term opportunity, the increased liquidity profile of an ETF may also provide a suitable vehicle for those with specific risk management criteria, helping to provide greater flexibility during times of increased volatility.
China’s rise
However, investors seeking a diverse EM portfolio may wish to consider the growing concentration of Chinese stocks within the major indices, and its exposure to specific regional volatility. At 25.5%, China is the largest country allocation within the MSCI Emerging Markets Index.6
In 2026, Chinese stocks suffered a volatile first quarter, enjoying a strong start to the year with fresh highs racked up on the back of breakthroughs in artificial intelligence and the government’s ‘anti-involution’ policies boosting corporate profit margins, which offset tariff fears.
However, China was set to be a beneficiary of February’s Supreme Court ruling that US tariffs were unconstitutional. After a strong run in the first two months, Chinese stocks moved into reverse in March as escalating conflict in the Middle East triggered a broad sell-off across Asian markets.
The Shanghai Composite Index registered its worst month in over four years, and the Hang Seng suffered its biggest monthly loss for two years.7 Closer to home, investors were dealing with disappointing economic data as factory activity slowed, while a regulatory crackdown also hampered the market.
Broader horizons
Choosing an ex-China index allows greater exposure to other emerging market opportunities. Metals like copper and nickel – key components in clean energy and EV infrastructure – are likely to be in higher demand as the world moves towards net zero. In 2025, more than a third of global copper production came from Chile and Peru while Indonesia and the Philippines are major nickel producers.8
A one-size-fits-all approach to assessing the outlook for EMs risks over-simplification but while few EMs will avoid the negative consequences of the worsening external environment, domestic demand resilience has improved, and overall growth will broadly stay the course (albeit at a below trend rate for most EMs).
Investors with a higher level of conviction in the growth potential of companies based outside of China may therefore prefer the proportionate exposure of an index, or investment strategy, which contains a greater percentage of opportunities elsewhere in the EM universe.
[1] China Stocks Win Most MSCI Index Additions in Nearly Three Years – Bloomberg
[2] IMF DataMapper, April 2026
[3] India Demographics 2026 (Population, Age, Sex, Trends) – Worldometer
[4] Nine key consumer trends in 2024 | McKinsey
[5] World Economic Outlook, April 2026: Global Economy in the Shadow of War
[6] MSCI EM (Emerging Markets) Index
[7] China stocks post worst month in over four years – Markets – Business Recorder / Hong Kong Stocks Post Biggest Monthly Loss in 2 Years
[8] Global nickel mining industry – statistics & facts | Statista
