Why Invest in Emerging Markets? | Emerging Market ETF

Why Invest in Emerging Markets? | Emerging Market ETF

We are here to discuss why you should invest in Emerging Market and Emerging Market ETF. In early 2020, the epidemic wreaked havoc on the financial markets. Later in the year, a second wave arose, which would last through 2021.

That now the pandemic has put the United States and other developed markets (D.M.s) on notice as safe-havens; we look at what emerging markets (E.M.s) have had to present portfolio investors.

Even though all nations were exposed to COVID-19, many E.M.s, especially China, South Korea, & Taiwan (Chinese Taipei), quickly contained the virus. These three countries account for almost two-thirds of something like the aggregate value of E.M.s. 

Some analysts believe that nations that responded well may have a long-term advantage. Others disagree, pointing to the dangers of new virus mutations.

What Do You Mean When You Say “Emerging Markets”?

Why Invest in Emerging Markets? | Emerging Market ETF

Emerging markets are economies that are in the transition from developing to prosperous.

Countries in the emerging-market period experience the most rapid development and, therefore, the most instability.

India, Mexico, Russia, and Saudi Arabia are among the current developing market economies in 2021. When finding developing markets, investors & economists search for nations with low political or social upheaval and stable economic development.

Investing with a long-term perspective

Why Invest in Emerging Markets? | Emerging Market ETF

We take a comprehensive approach, as we always do. Short term perspective and market sentiment can have a significant negative impact on investment performance. 

Those few who follow the crowd are doomed to sell when the markets drop and buy when they start going up.

Since 1900, the Credit Suisse Worldwide Investment Results Yearbook has documented and analyzed global investment returns. Its goal would be to use financial history to shed some light on current investor concerns. Winston Churchill had said, “The longer you could indeed take a moment to reflect, the so much further you can look forward,” 

Why should you put money into Emerging Markets?

Why Invest in Emerging Markets? | Emerging Market ETF

E.M.s accounted for less than 3% of global equity market capitalization & 24% of global GDP just 20 years ago. They now account for 14% of something like the free-float investable universe of global stocks & 43% of GDP.

Volatility within emerging markets

Why Invest in Emerging Markets? | Emerging Market ETF

Emerging markets are notoriously volatile. Significant events like revolutions, wars, & crises can assist in understanding this trend.

Only South Africa has lower D.M. volatility than that of the rest of the world. Ten nations experienced more than 30% volatility, with Brazil (54%) and Russia (67%) having particularly significant volatility, indicating instances of past hyperinflation.

The Rewards vs The Risks

 Emerging Markets Comes with Risks

Why Invest in Emerging Markets? | Emerging Market ETF

The main danger of this sort of investment is investing too late in an emerging market. 

China is an excellent example of an economy that was formerly classified as an emerging market. However, by the time most people were conscious of China’s economic rise, the country was well on its approach to becoming a global economic superpower.

Investing in a developing market at its peak might be pretty expensive. Furthermore, because developing market development isn’t consistent and can be somewhat unpredictable, the timing of such an investment is critical.

The path to becoming a developed economy is not always straightforward. Political turmoil or natural calamities may severely (and unexpectedly) hinder a country’s economic progress. 

However, this might come at a high price for eager investors. Since about the 1990s, Russia, for example, has alternated between being an emerging market and a developing economy. 

The fallout from communism and bad monetary management resulted in significant debt default, dramatically depreciating Russia’s ruble’s currency. 

For a long time, the country was thought to be a poor deal. Russia, on the other hand, has enormous oil reserves & mineral deposits. It is therefore highly possible that it will grow into a developed country in the not-too-distant future.

Emerging Markets Has Its Benefits too.

Why Invest in Emerging Markets? | Emerging Market ETF

The benefits of investing in such an emerging economy might exceed the dangers if essential prudence is followed.

Despite their volatility, the fastest-growing economies will have the most growth and indeed the highest-returning stocks.

Limiting yourself to appropriate risks is the key to bringing change from emerging economies to your portfolio. 

ETFs are certainly a terrific alternative since they allow you to add a whole country or a group of nations to your portfolio.

Furthermore, Due to their global character, many U.S. blue-chip companies provide reasonable exposure to developing economies. For example, Coca- Cola’s revenue mix reflects its popularity in China, Japan, and the United States. 

Investing in blue-chip stocks or funds that invest within those stocks can provide emerging market exposure while maintaining the stability of established markets.

Emerging Market ETF

Why Invest in Emerging Markets? | Emerging Market ETF

These are ETFs that invest in equities from emerging markets, including India,Thailand, and Brazil. 

Such funds are tracked by an underlying index and therefore are managed passively. These ETFs, but on the other hand, are managed passively & incorporate companies from several nations. The underlying index that is developing market ETFs monitor varies depending on the fund management.


Emerging Market ETFs: What You Need to Know

Why Invest in Emerging Markets? | Emerging Market ETF

Emerging-market exchange-traded funds (ETFs) invest in equities traded throughout emerging

markets. Such stocks always could provide exceptional long-term gains. The stores would’ve been chosen by the fund manager based upon growth potential for investors.

Emerging market exchange-traded funds (ETFs) are ideal for long-term investors. Such

investors can’t afford to waste out on this fantastic chance provided by all these ETFs.

Emerging markets, unlike mature markets, are capable of offering exceptionally high returns because they have room for growth. In general, rising countries are usually recognized for their abundant natural resources heavily used by industrialized economies.

Emerging markets, without question, provide a fantastic possibility for long-term capital gain, but they also undergo a rigorous learning process. Such markets are indeed very volatile due to their sensitivity to geopolitical variables.

Emerging market investors may focus on a specific industry section based on geographical affinity or asset class.

The Benefits and Drawbacks of an Emerging Market ETF

Why Invest in Emerging Markets? | Emerging Market ETF

Emerging market ETFs are popular among investors because of their diversification benefits and their propensity to generate returns. By investing in stocks in emerging economies, developing market ETFs are less exposed to U.S. equities than other ETFs that predominantly invest in inequities.

Emerging market ETFs are also much more liquid than emerging market mutual funds, as ETFs may be purchased and traded quickly on such an exchange. However, mutual funds can only ever be redeemed somewhere at the end of each trading day’s price. Investing directly through local stock markets in emerging market countries has more significant trading fees.

Before investing in emerging markets, investors should have been aware of a variety of possible risks. Geopolitical, currency, & governance issues all affect emerging markets. Because they are still moving from closed economies towards market economies, these markets seem to be more prone to volatility than their more established equivalents. Furthermore, cost ratios for emerging market ETFs may very well be slightly higher than the ones for domestically oriented products.

Before you invest, there are a few things to think about.

  1. When invested over a long period, certain ETFs can provide very significant returns.
  2. Investing in developing market ETFs can indeed be dangerous at times, as emerging markets might experience sharp drops.
  3. Emerging markets are frequently impacted by global events, which makes them highly volatile.

What is the MSCI Emerging Markets Index, and how does it Work?

Why Invest in Emerging Markets? | Emerging Market ETF

The MSCI Developing Markets Index is being used to monitor the performance of emerging market stock markets. This is one of Morgan Stanley Capital International’s several indexes formed in the 1960s (MSCI). The index includes mid- through large-cap corporations from more than a dozen emerging markets. It also accounts for nearly 13% of worldwide capitalization.

You may also like to read: Penny Stocks & Penny Stock ETF | 3 Best Penny Stock ETFs for Investment

The MSCI Emerging Markets Index: An Overview

Why Invest in Emerging Markets? | Emerging Market ETF

Companies from 26 developing nations are also included in the MSCI Emerging Markets Index.

Argentina, Brazil, Colombia, Egypt, Chile, China, Czech Republic, Greece, India, Hungary, Korea, and Taiwan are among the countries mentioned. The index used to be made up of ten nations. The MSCI is frequently regarded as a standard of measurement for mutual funds massive success.


●The MSCI Developing Markets Index is being used to monitor the performance of emerging market stock markets. It covers mid-cap to large-cap corporations in 26 European and Asian nations.

● The MSCI Emerging Market ETF allows investors to buy the index.

●There are around 1,385 constituents in the index, with China, Taiwan, and Korea dominating the top three geographies, with firms contributing to a significant index share.

Investing in the MSCI Emerging Markets Index is a great way to diversify your portfolio.

An investor can acquire the MSCI Emerging Markets Index through an exchange-traded

fund (ETF). Emerging markets are often thought to be risky investments due to their political and monetary concerns. Those who plan to invest in emerging markets should expect fluctuating results.

This ETF, in principle, delivers more significant returns plus potential losses with increased risk & volatility – it depends on the prevailing economic the environment at the moment. Many investors concentrate on building economies to diversify their portfolios in specific ways because their current portfolio may contain many businesses or indices from developed economies, such as North American stocks.

Portfolio Composition of MSCI Emerging Markets

Why Invest in Emerging Markets? | Emerging Market ETF

The 10 leading MSCI Emerging Markets holding corporations including their respective weighted average since around August 20, 2020, were just as follows:

  1. Alibaba Group is a multinational corporation based in China (7.55 percent )
  2. Tencent Holdings is a Chinese company (5.76 percent )
  3. TSM stands for Taiwan Semiconductor Manufacturing (5.52 percent )
  4. Samsung Electronics is a Korean electronics company (3.6 percent )
  5. Dianping Meituan (1.63 percent )
  6. Reliance Industries is a company based in India (1.25 percent )
  7. Naspers Limited is a company based in Johannesburg, South (1.18 percent )
  8. China Construction Bank Corporation is a financial institution based in China (1.13 percent )
  9. Pingan Insurance Group is a company that specializes in insurance (1 percent )
  10. ADR Representing Inc. (www.adrrepresenting.com) (0.95 percent )

In terms of geographic distribution, the funds are distributed as follows:

  • Taiwan is a country in Taiwan (12.53 percent )
  • Korea is a country in Asia (11.71 percent )
  • India is a country in South Asia (8.16 percent )
  • Brazil is a country in South America (4.87 percent )
  • South Africa is a country in Africa (3.49 percent )
  • Russian Federation (Russian Federation) (3.09 percent )
  • Saudi Arabia is a country in the Middle East (2.53 percent
  • Thailand is a country in Southeast Asia (1.93 percent )
  • Malaysia is a country in Southeast Asia (1.69 percent )
  • Mexico is a country in Central America (1.67 percent )
  • Indonesia is a country in Southeast Asia (1.4 percent )

The following are the five world’s biggest sector distributions:

  • Financial Statements (18.02 percent )
  • Information and Communication Technology (17.66 percent )
  • Communication is essential (12.56 percent ) Components (7.05 percent)

When does the MSCI Emerging Markets Index going to be re-evaluated?

Why Invest in Emerging Markets? | Emerging Market ETF

The MSCI Emerging Markets Index is re-evaluated & reviewed: in February, May, August & November. The evaluations are intended to represent the ever-changing nature of the emerging equities markets. From May to November, rebalancing takes place. Both mid-, as well as large-cap firms are adjusted throughout the rebalancing phase.

Final Words

While investing in emerging markets can be a great way to diversify and generate positive returns, it’s important that you take the time to research and invest early.


Anish is post graduate in commerce & management. He is a qualified Chartered Accountant & Information System Auditor with experience of more than 20 years in the field of management, accounting & taxation. He is visiting the faculty of various universities and providing career advice to aspirants Anish Agrawal has authored many books on Accountancy & Taxation.

Leave a Reply