🚀 Emerging Markets

Emerging markets offer exposure to faster-growing economies — but with significantly higher volatility, political risk, and currency swings. These markets have delivered spectacular gains during global growth cycles and devastating losses during crises. Understanding the ETF landscape — and the China concentration problem — is essential for sizing your EM allocation appropriately.

The big two: EEM vs VWO

These are the dominant emerging market ETFs. Despite tracking similar universes, they differ in cost and methodology.

EEM — The liquid benchmark

EEM is the original emerging markets ETF and remains the most liquid, with the best options market.

Key characteristics:

• MSCI methodology: Institutional benchmark standard
• Large/mid-cap focus: ~1,400 holdings
• Best options liquidity: Tightest spreads, most volume
• Higher expense ratio: 0.70% — reflects legacy pricing

When to use EEM:

• You need options for hedging or income strategies
• You’re making large trades requiring maximum liquidity
• You’re benchmarking against MSCI EM

The trade-off: Expensive. For long-term holding, cheaper alternatives exist.

VWO — The low-cost alternative

VWO tracks the FTSE Emerging Markets All Cap Index at just 0.08% — nearly 10x cheaper than EEM.

Key characteristics:

• FTSE methodology: Different country classifications than MSCI
• Broader coverage: ~5,800 holdings including small-caps
• South Korea excluded: FTSE classifies Korea as developed (unlike MSCI)
• Vanguard scale: Massive AUM, low trading costs

When to use VWO:

• Long-term buy-and-hold allocation
• You want the lowest possible expense ratio
• Korea exclusion is acceptable (it’s in VEA instead)

The trade-off: Less liquid options market than EEM.

IEMG — The middle ground

IEMG offers MSCI methodology at near-Vanguard pricing (0.09%).

Key characteristics:

• MSCI Investable Market Index: Includes small-caps (~2,800 holdings)
• South Korea included: Unlike VWO
• Core series pricing: Part of iShares’ low-cost lineup
• Growing AUM: Now rivals VWO in assets

When to use IEMG:

• You want MSCI exposure for benchmark consistency
• You prefer Korea inclusion
• Core long-term allocation

Comparing the three

The China problem

China weight in major EM ETFs

Why China weight matters

Ex-China alternatives

If you want EM exposure without China concentration:

When to use ex-China:

• You want to size China exposure separately
• You’re concerned about China-specific risks
• You want to pair with a dedicated China ETF

Country ETFs — Targeted exposure

For tactical bets on specific emerging economies:

China

FXI vs MCHI: FXI is concentrated (50 stocks, state-owned heavy). MCHI is broader and includes more private companies. KWEB/CQQQ for pure tech exposure.

Brazil

EWZ characteristics:

• High volatility: BRL (Brazilian real) swings can be extreme
• Commodity-linked: Heavy energy, materials, financials
• High dividend yield: Often 5-8% yield
• Political sensitivity: Elections, Petrobras, fiscal policy

India

India characteristics:

• Fastest-growing large economy: Demographics favorable
• Less commodity-dependent: Tech, financials, consumer focus
• Relatively expensive: Premium valuations vs. other EM
• Currency volatility: INR can swing meaningfully

Taiwan & Korea

Semiconductor exposure: Both Taiwan (TSMC) and Korea (Samsung) are heavily weighted toward semiconductors. These are essentially leveraged bets on the global chip cycle.

Other notable EM countries

The EEM/SPY ratio — Key signal

The ratio of EEM to SPY shows emerging market risk appetite:

What drives EM outperformance?

EM within international allocation

EFA/EEM ratio — Developed vs Emerging

This ratio shows preference within international allocations:

Historical pattern: EM tends to outperform developed during global growth accelerations and commodity bull markets. Developed tends to outperform during risk-off periods and dollar strength.

Which ETF for which situation?

Quick reference

Sources