On the lookout for emerging markets investing opportunities? Most emerging markets indexes, of course, contain significant exposure to the biggest “emerging” market, China. While that has historically presented some solid opportunities for U.S. investors, potentially rising tensions threatens further investment. At the same time, while a significant economy with real opportunities, the Chinese economy still faces some sluggish numbers amid a debt crisis and lagging consumer spending. An ex-China emerging markets approach, instead, can provide a useful alternative.
Why look to emerging markets in the first place? U.S. investors may be feeling like domestic equities are all the rage right now, but diversification matters. While a soft landing appears likely, inflation – potentially via new tariffs – has stubbornly stuck around. Building a core equities allocation around domestic-focused funds makes sense, but it may be worth investing abroad, too. In that case, given worries about China, an ex-China emerging markets ETF could appeal.
The KraneShares MSCI Emerging Markets ex China Index ETF (KEMX), for example, can provide a potent option therein. KEMX charges a 24 basis point (bps) fee for its approach. The strategy, which celebrated five years of operation this April, tracks the EGAI Emerging Markets ex-China Index. The ex-China emerging markets ETF invests in large and mid-cap firms excluding China.
Weighting firms by market cap, that approach offers investors exposure to some potentially positive opportunities abroad. Supply chains have shifted since the end of the COVID-19 pandemic, with many U.S. firms “nearshoring” certain services to Mexico, for example. Elsewhere, growing middle classes in countries like India, for example, also present a medium-term case for investment.
The ex-China emerging markets ETF has returned 7.4% YTD per KraneShares Investments data. Together, the fund presents an opportunity to diversify abroad while avoiding potential tensions with China. As that country also faces its own domestic problems, adding KEMX on top of a core equities allocation can appeal.
