Be part of the emerging markets growth story

Investing in emerging markets can be complex to access as an individual investor, with a range of local legal and administrative requirements to contend with. ETFs have helped investors to access baskets of shares from these markets in a direct, efficient, and easily tradeable way, with the ETF provider doing the legwork of meeting administrative obligations.

Historically, investors have treated the umbrella of EM as one asset class. But as China’s weight in the major EM indices has grown, we have seen an increased interest from investors in making distinct allocations between EM ex-China and China, to more flexibly tailor their investment views across the different regions.

For instance, while China accounts for almost one-third of the MSCI EM Index, it represents less than 3% in global benchmarks.¹ As companies from the world’s second largest economy expand, investors may elect to overweight or underweight allocations to China relative to its significance in global markets.

Emerging market economies are positioned to benefit from some of the key ‘mega forces’ driving growth opportunities in today’s investment landscape. The most dominant of these forces recently has been artificial intelligence – the newly launched model from Chinese AI lab DeepSeek shows comparable performance to US rivals but with lower costs and using less advanced computer chips, as seen in the chart below.

China’s AI model has leading capabilities and competitive pricing

Source: Artificial Analysis, data compiled by Goldman Sachs Global Investment Research as of February 2025

This has disrupted and challenged the tech sector, driving investor optimism around the future acceleration of China’s tech sector. At the base of the AI ‘stack’, Taiwan’s TSMC – the largest semiconductor manufacturer in the world² – is likely to continue its dominance on the back of a deal to produce more of its chips in the US.

A second important theme we have seen play out at the macro level is geopolitical fragmentation, as the global economy increasingly splits into competing blocs and supply chains are rewired. Economies such as commodity-rich Brazil, with its valuable resources and supply inputs, as well as a diverse export base across Asia, Europe and the Americas, are well-positioned to benefit from this trend.

Finally, demographic change will also play a role in long-term economic growth as markets with younger, working-age populations claim an advantage. With India set to overtake China by 2030 in terms of the percentage of its total population that’s working age, we expect demographics, as well as moderating inflation and supportive monetary policy, to act as a tailwind for India's economy.³

With a range of ETFs available across broad EM, EM ex China and Chinese equities, as well as EM fixed income exposures, you can adjust and blend your allocations to EM economies based on market events and your own investment views.

For investors with existing global equities exposure, an allocation to broad emerging markets may make sense for diversification purposes. EM has a low correlation to US equities, which make up more than 70% of the MSCI World Index, so it's likely if you invest in global equities via an index, you are overweight US shares.⁴ Alternatively, investors may choose to take a ‘building block’ approach and more flexibly manage their allocations between China and other emerging markets.

In 2025, this has been an increasingly popular approach among Australian iShares clients, with both the iShares MSCI Emerging Markets ex China ETF (EMXC) and the iShares China Large Cap ETF (IZZ) making the top 20 most popular iShares products on a year to date inflow basis. Together, these two ETFs have taken in more than $184 million so far this year.⁵