Understanding Emerging Markets ETFs August 13, 2026

An Emerging Markets ETF (Exchange-Traded Fund) is a pooled investment vehicle that invests primarily in stocks from fast-growing, developing economies across Asia, Latin America, Eastern Europe, and Africa.

While some Emerging Markets ETFs track broad global indexes to cover dozens of countries at once, others target specific regions, themes, single countries, or investment factors. Additionally, investors can choose between:

• Passive ETFs: Designed to track the performance of a specific benchmark index.
• Active ETFs: Managed by portfolio managers who actively select and adjust holdings to seek outperformance. (To learn more, read our guide on What is an Active ETF?)

1. Why Invest in Emerging Markets ETFs?

Higher Long-Term Growth Potential

Developing economies like Brazil, China, and India are widely recognised for their structural economic tailwinds. These include expanding middle-class demographics, rapid urbanisation, massive infrastructure development, and accelerating technological adoption.

According to projections by S&P Global, emerging markets are expected to contribute approximately 65% of global economic growth by 2035.

Historically, these economies have expanded at a significantly faster pace than developed nations. Between 2015 and 2025, emerging markets recorded a 10-year GDP compound annual growth rate (CAGR) of ~5.8%, compared to a more modest 2.0% CAGR for developed markets (Figure 1.1). This growth differential highlights the powerful momentum underlying developing economies.

Fig 1.1 World Economics as of June 2026

High Allocation to Next-Gen Technology & Innovation

A prominent example of a broad market vehicle is the iShares MSCI Emerging Markets ETF (EEM). Beyond traditional industrial sectors, a significant portion of EEM’s portfolio is allocated to high-growth technology-related sectors (47.37%) (Figure 1.2). This weighting reflects the rapid digital transformation occurring across developing economies, where domestic champion firms dominate e-commerce, semiconductor fabrication, digital payments, and consumer platforms.

Fig 1.2 iShares MSCI Emerging Markets ETF (EEM) Sector Allocations as of 4 June 2026

Strategic Global Supply Chain Positioning

Geographically, funds like EEM feature high concentrations in key Asian growth hubs—notably China (28.82%), Taiwan (21.97%), and India (15.20%) (Figure 1.3).

Fig 1.3 iShares MSCI Emerging Markets ETF (EEM) Country Breakdown as of 4 June 2026

While markets like Taiwan and South Korea provide vital advanced tech manufacturing (such as leading-edge semiconductors), other emerging nations, like Brazil, Indonesia, and Saudi Arabia, possess rich deposits of essential natural resources (e.g., copper, lithium, nickel, and crude oil). Together, these economies form critical backbones for both global manufacturing supply chains and the ongoing energy transition.

2. Recent Performance & Expense Breakdown

Data as of 31 July 2026. Note: Past performance is not indicative of future results.

Performance Context

Over the measured 1-year period, broad developed market benchmarks generated moderate returns (with the S&P 500 returning 19.53% and IDEV returning 25.48%). In contrast, targeted Emerging Markets ETFs significantly outperformed their developed market peers.

This outperformance demonstrates how capital inflows can surge into developing markets during periods of favourable economic policy, industrial expansion, and earnings acceleration.

Understanding Cost Differentials

Despite higher return potential, Emerging Market ETFs generally charge higher expense ratios than core US or developed market funds. Operating across multiple developing jurisdictions introduces` higher operational costs, including:

1. Foreign exchange handling and currency conversions
2. Differing local tax structures and custody fees
3. Lower underlying market liquidity or wider local bid-ask spreads
4. Complex regulatory compliance across multiple jurisdictions

Investors are essentially paying a small premium to outsource the operational complexity of building a cross-border emerging market basket manually.

3. Key Risks to Consider

While the upside trajectory can be compelling, emerging market assets carry elevated risk profiles:

Political and Regulatory Risk: Developing markets can experience abrupt policy shifts, regulatory revisions, trade barriers, or geopolitical friction that may impact corporate earnings or access to capital.

Currency (FX) Volatility: Because these funds hold assets denominated in foreign currencies (e.g., BRL, INR, TWD, KRW), returns are subject to exchange rate fluctuations. If an emerging market currency depreciates against your home currency, it can erode or neutralise underlying stock gains.

Liquidity and Market Volatility: Smaller or less developed local exchanges can suffer from liquidity dry-spells during broader global risk-off events, leading to higher price volatility.

4. Investor Checklist: Evaluating an Emerging Markets ETF

Before allocating capital to an Emerging Markets ETF, review the fund’s Factsheet for the following indicators:

Benchmark Index: Identify what the fund tracks (e.g., MSCI Emerging Markets Index vs. FTSE Emerging Index—note that FTSE classifies South Korea as a developed market, whereas MSCI classifies it as emerging).

Country & Sector Concentration: Check whether the fund is overweight in a single nation (e.g., heavy China exposure) or concentrated in a single sector (e.g., technology).

Top Holdings: Review the top 10 positions to assess single-stock concentration risk.

Tracking Error: Measure how accurately the fund replicates its underlying index performance over time.

Trading Volume & Bid-Ask Spread: Look for higher average daily trading volume and tighter bid-ask spreads to ensure cost-efficient trade execution on the exchange.

5. How Singapore Investors Can Incorporate Emerging Markets ETFs

1. Portfolio Diversification
Adding Emerging Markets ETFs to a portfolio dominated by US or domestic Singapore equities helps lower overall portfolio concentration risk. Because developing markets operate on distinct economic cycles, their returns often exhibit lower correlation with developed markets over long horizons.

2. Intraday Liquidity vs. Mutual Funds
Compared to traditional unit trusts or mutual funds, which settle only once per day at the official Net Asset Value (NAV), ETFs trade live on stock exchanges throughout market hours. This offers investors immediate pricing transparency, continuous execution flexibility, and better tactical timing for entry and exit points.