Global Emerging Markets sector investment review

Emerging markets meaning

Emerging markets are in the process of transitioning from lower income, less developed economies towards modern, industrial ones with a higher standard of living and typically more engagement on the global stage.

Some rely on exporting goods to developed markets, a prime example being China. Although it is transitioning to greater domestic consumer-driven growth, which is already the case in India. Others such as Brazil are rich in commodities and natural resources. 

Rapid industrialisation, growing populations and increasing standards of living can mean plentiful opportunities for investors in emerging markets. However, the risks are also often significantly greater, and rapid economic growth rates or population increases do not necessarily translate to strong stock market performance.

An earlier stage of development can mean less stringent market and government regulations. Share prices can also fluctuate rapidly or to extreme highs and lows due to there being fewer investors buying and selling. There may also be greater political risks and of government intervention in a company. Finally, emerging market currencies can also be subject to significant fluctuations, and exchange rates can work for or against investors.

Options for investing in emerging markets

Funds investing in the region have different areas of focus:

Global Emerging Markets – Funds with broad exposure to emerging market equities with China and India usually foremost, but with additional exposure to areas such as Latin America, Eastern Europe and South East Asia. Typically, they encompass China, India, South Korea, Brazil, Mexico, South Africa, and Taiwan, though arguably South Korea or Taiwan have already fully ‘emerged’ into developed markets. 

Single country / region – These funds mainly focus on emerging market stocks in individual countries, such as India or China, or regions such as Latin America.

Frontier markets – An even more specialist strategy of investing in stock markets that are less established than those in emerging markets. They are at a very early stage, much smaller and less accessible, with fewer companies to invest in. They will also typically be high risk countries, sometimes with increased danger of political unrest.

As emerging market countries are quite different from each other, and each one as a high level of risk, this sector can be home to some of the best and worst-performing stock markets at any given time. That’s why a diversified approach of a broader emerging market fund can make sense. Other funds could then be added to a portfolio for extra exposure to a particular theme, area, or country as desired.

As with most sectors, investors have the choice of buying a passive investment, which aims to replicate the performance of a market index before charges, or backing an active manager who will attempt to maximise returns and beat the index. 

The passive constituents on our Preferred Fundlist are Fidelity Index Emerging Markets and  iShares Core MSCI EM IMI UCITS ETF. The former is a fund that aims to track the MSCI Emerging Markets index, while the latter is an emerging markets ETF designed to replicate returns from the less widely used MSCI Emerging Markets Investable Market Index, which includes a weighting in smaller companies. At certain times this could give it a slight edge in terms of performance, and at others it may detract from returns.

Emerging markets is an area where we think it is worth considering active funds. The less mature nature of many of the markets and the relative lack of in-depth analysis being conducted on companies by the financial community tends to result in more opportunities for active managers to capitalise on. 

In developing countries there is also typically less stringent governance, so an active manager can also add value by avoiding the problem companies or, in certain cases, those most adversely impacted by the political or regulatory landscape. Some emerging markets contain significant companies that are partly state-owned and don’t always prioritise shareholder returns, so interpreting these can also add value over time.

Active emerging market funds will vary significantly from one another, so investors need to ensure they are happy with the philosophy of the manager and the mix of geographical exposures in the fund before investing. Given the differences in geographical make-up, as well as the assortment of varying investment styles, it is normal to see wide divergences in performance.

Recent performance of emerging markets investments

Emerging markets saw mixed results over the year to the end of June 2025.

The MSCI Emerging Markets index rose 7% but there were significant differences in terms of the underlying geographical weights. In terms of the largest emerging markets, China powered ahead with investor sentiment buoyed by the government announcing plans to boost the economy and promote key technologies such as artificial intelligence. Meanwhile India fell in the first part of 2025 as investors withdrew money from the country following a period of strong returns, but it subsequently made a strong recovery as global trade fears subsided.

Latin America has had a mixed time of it. The region initially fared better than others from the imposition of US tariffs, enhancing its competitive position for trade with the US relative to most of the rest of the world. Commodity producers also benefited from increased demand from the weakening in the US dollar that resulted from the tariff disruption. However, subsequent targeted tariffs, such as those on copper, steel and aluminium, have led to renewed uncertainty and a potentially more damaging situation – although the situation, as ever with tariffs – remains fluid.

Many frontier markets performed particularly well, with some benefitting from the de-coupling of US-China trade, albeit it was a wild ride for some such as Vietnam where heavy headline tariffs were subsequently rolled back following negotiations.

Here's how the actively-managed  global emerging market equity funds on our Preferred List got on over the past year, as well as in previous periods, with commentary on each fund detailed below, although please note that past performance is not a reliable indicator of future returns.

Performance of broad Global Emerging Markets funds on the CSD Preferred List

Past performance is not a reliable indicator of future returns. Figures are calculated in £ on a % total return, bid to bid price basis with net income reinvested; Source: FE Analytics, data to 30/06/25

Performance of specialist and single country Global Emerging Markets funds on the CSD Preferred List

Past performance is not a reliable indicator of future returns. Figures are calculated in pounds on a % total return, bid to bid price basis with net income reinvested; Source: FE Analytics, data to 30/06/25

* This index is provided here to provide broad context only and is not a direct comparison. The Trust uses a bespoke benchmark comprising frontier and emerging markets outside the largest eight economies in the MSCI Emerging Markets Index. 

How to invest in emerging markets

Broad Global Emerging Markets investments to consider

JPM Emerging Markets Income

This fund has a good record of keeping up with its emerging markets benchmark while delivering an income to investors. Emerging markets offer diversification for income hunters, and the discipline of seeking out cash-rich companies capable of growing their dividends can help provide some stability in what is a riskier sector to invest in. 

The fund does not invest in low yielding stocks, which typically tilts it away from the Indian market and towards other parts of the emerging market opportunity set. Top holding TSMC has been volatile against a backdrop of trade tensions and questions over the demand outlook for high end chips but has rallied well off the lows. Meanwhile, exposure to Indian IT businesses has been dialled back based on potential for soft demand out of the US.

Exposure to Korea has been beneficial with governance reforms expected to support the fund’s exposure to banks and other financials in the country, plus holdings in Kia and Samsung have contributed positively. The fund is also heavier in Brazil, Mexico and Indonesia than the broader index, though a lack of Chinese exposure, particularly to strong performing areas such as EV manufacturers, has been a recent headwind.

Lazard Emerging Markets           

Manager James Donald can draw upon his many experiences during a track record spanning over two decades as well as a broad and well-resourced team. The fund adopts a patient and strict ‘value’ approach, buying into shares in unloved companies at a significant discount to their true worth. However, Donald’s philosophy could be better summed up as ‘quality at a discount’. He and his team seek stocks exhibiting high and sustainable profitability, but that trade at attractive valuations relative to peers or their own history.

The valuation and quality disciplines of the fund continued to prove rewarding over the past year alongside a relative lack of exposure to the Indian market, which experienced a pullback. In addition, exposure to Latin America was helpful where commodity-driven markets have benefitted from weakness in the US dollar. 

Recent new investments include Brazilian companies Rede D'Or (hospital management) and International Container Terminal Services (major container port operator). The manager still reports difficulty in finding opportunities in the Indian market where valuations remain more expensive, and he has recently reduced exposure to China too due to falling profit margins and concerns about corporate strategy. 

Templeton Emerging Markets Trust

At almost £2bn Templeton Emerging Markets is the largest emerging markets investment trust by some distance and has a long history. Launched in 1989, it was once overseen by the emerging markets pioneer Mark Mobius and is now managed by Chetan Sehgal and Andrew Ness alongside a team with considerable industry experience. Well diversified by country and sector, it is an investment trust option for ‘core’ emerging market exposure.

The managers believe their long-term view allows them to look beyond short-term news, noise, and emotion and identify emerging markets companies whose prospects in terms of future earnings power are not fully understood by the market and thus not accurately captured in their current valuations. 

The manager’s patient approach and focus on key company factors such as share buyback activity, rising dividends and cheaper valuations has paid off over the past year. Stock picking in both China and India has been strong, areas that are held in lower quantity than the benchmark index. Meanwhile, an allocation to Korea was beneficial in terms of geographic exposure, a market where the managers are confident of continue strong performance thanks to corporate governance reforms.

Specialist emerging market investments to consider

BlackRock Frontier Markets IT   

BlackRock Frontiers Trust invests across emerging and frontier markets, excluding the largest countries that dominate the typical emerging markets portfolio. The differentiated investment universe means it offers diversification benefits when held alongside a typical emerging markets fund or a tracker, though the two would tend to be more correlated during periods of market stress.

Accessing this higher risk area through an investment trust is advantageous. The structure frees up the managers from the headache of managing daily flows, especially important when investing in the often-illiquid stocks of these nascent markets. Frontier markets tend to be heavily influenced by capital flows and currency swings. Large deficits can presage weakening currencies, political instability, economic slowdowns and crisis conditions. Significant political, governance and liquidity risks are recurring features. 

The BlackRock team are experienced specialists at looking at these markets, not just looking at the companies in detail but considering the stability of the political and legal systems at a national level, alongside central bank policy and other internal factors. We regard the scale and resource of the team as a significant advantage. 

At present, Indonesia is a 11% weight and is thought by the managers to be well placed despite weak short-term performance as markets fret about political developments. The biggest country exposures compared to that of the index at time of writing are Kazakhstan, Hungary, Turkey and Pakistan. In the latter the Trust’s holdings include an Islamic bank which is gaining share through cost advantages, plus a conglomerate that has been accumulating businesses as others pull out the country.

FSSA Greater China Growth

This fund harnesses a long-established and successful process looking for high quality, well-managed companies in mainland China and the surrounding area. There is a strong emphasis on long term investment decisions and capital preservation, though it is inevitably a region where stock market volatility can be very high.

The managers’ focus is firmly on stock selection rather than looking at the economic picture, and a detailed assessment of a company’s balance sheet and management is a priority. Companies with sustainable business models, predictable earnings and compelling valuations are actively sought. 

We believe the fund represents a strong candidate for those looking to invest in this higher risk and specialist area for the longer term. Sentiment towards China has been pessimistic at times as investors were spooked by government interventions, but this fund has managed to navigate a less volatile path by focusing on strong companies with shareholder-friendly policies, as well as using the full extent of its mandate to invest in opportunities in Taiwan and Hong Kong.

The key change in the year was Helen Chen taking over as lead manager from veteran Martin Lau in February, having previously been a named co-manager. Chen now has the final say on portfolio decisions, expanding her lead manager duties beyond the team’s China-only mandate. Lau remains highly influential in the process and is now co-manager on the fund.

Performance was notably weak during the review period. Although the fund has latterly moved into some internet stocks that have been among the top performers it missed much of the rally in those names. The managers note the improved corporate governance in China and the healthy growth in dividends and share buybacks that is helping to improve sentiment and propel shareholder returns.      

Goldman Sachs India Equity Portfolio 

This specialist fund invests in India companies with perceived strong or improving fundamentals when they are trading at a substantial discount to their intrinsic value. Given the potential to exploit inefficiencies, the fund will be structurally overweight in medium-sized and smaller companies versus the index. 

Historically, stock selection has been the dominant driver of returns rather than sector or style factors, and we would expect this to be the case going forward with the team having built a strong record. Management of the fund recently passed from Hiren Dasani to Aman Batra, another longstanding member of the team. While this causes us no immediate concerns as the strength of the team remains impressive, we will be closely monitoring the fund to see how the new lead manager performs.

The fund slightly outperformed during the period, falling by slightly less than the benchmark index despite exposure to smaller companies which experienced heightened volatility.