Emerging markets ETFs give Australian investors access to high-growth economies including China, India, Taiwan, Brazil, and South Korea in a single ASX-listed fund. They are higher risk than developed market ETFs but can provide diversification benefits and exposure to economic growth outside the US and Europe.
What Are Emerging Markets?
“Emerging markets” refers to economies that are developing rapidly but have not yet reached the income levels and market maturity of developed countries (US, UK, Japan, Australia). The MSCI Emerging Markets Index includes approximately 24 countries:
Major emerging markets:
- China (~26–30% of MSCI EM index)
- India (~18–22%)
- Taiwan (~16–18%)
- South Korea (~12–14%)
- Brazil (~4–5%)
- Saudi Arabia (~3–4%)
- South Africa (~2–3%)
- Other (Indonesia, Mexico, Thailand, etc.)
Weights change significantly. Check the index provider for current data.
Why Do Some Investors Include Emerging Markets?
Potential advantages:
- Exposure to faster-growing economies (GDP growth in India, Indonesia, Vietnam exceeds the US)
- Diversification beyond the developed world
- Some of the world’s largest companies (Taiwan Semiconductor, Samsung, Tencent, Alibaba) are in emerging markets
- Long-term demographic tailwinds (younger, growing populations)
Risks to understand:
- Higher political and regulatory risk (government intervention, capital controls, nationalisation)
- Currency risk (weaker, more volatile currencies)
- Lower corporate governance standards in some markets
- Higher MER for emerging market ETFs
- Significant China concentration risk (Chinese government policy can sharply affect Chinese listed companies)
The Main Emerging Market ETFs on the ASX
| ETF | Provider | Index | Holdings | MER |
|---|---|---|---|---|
| VGE | Vanguard | FTSE Emerging Markets All Cap | 5,000+ | 0.48% |
| EMKT | VanEck | MSCI Emerging Markets | 1,000+ | 0.69% |
VGE — Vanguard FTSE Emerging Markets All Cap ETF
VGE tracks the FTSE Emerging Markets All Cap Index, which includes approximately 5,000+ securities across emerging markets. Key points:
- MER: 0.48% (higher than VGS at 0.18%)
- Distributes annually
- South Korea is excluded from the FTSE emerging markets classification (classified as developed market)
- China, India, Taiwan are the largest country weights
EMKT — VanEck Emerging Income Opportunities Active ETF
EMKT tracks the MSCI Emerging Markets ex Controversial Weapons Index with a slight active overlay for income. Key points:
- MER: 0.69%
- Distributes quarterly (higher income focus than VGE)
- Uses ESG screens to exclude controversial weapons manufacturers
Do Most Australian Investors Hold Emerging Markets?
Most simple diversified ETF portfolios (DHHF, VDHG) include some emerging markets exposure:
- DHHF: approximately 12% in HEMQ (BetaShares Emerging Markets)
- VDHG: approximately 5% in VGE
Investors using a VAS + VGS combination have no emerging markets exposure (VGS tracks developed markets only). Adding VGE or EMKT adds a third fund to manage.
Emerging Markets in a Portfolio Context
Many financial commentators note that emerging markets make up approximately 12–14% of global share market capitalisation. A portfolio that only holds VAS + VGS is therefore underweight global market cap by that amount.
Whether to add emerging markets exposure is a personal decision depending on conviction in long-term growth, tolerance for volatility and political risk, and portfolio complexity.
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Frequently Asked Questions
Is VGE or EMKT better for Australian investors? VGE (0.48%) is cheaper than EMKT (0.69%) and holds 5,000+ securities — significantly more diversified. EMKT holds fewer stocks but pays quarterly distributions (VGE is annual) and excludes controversial weapons manufacturers. For cost-conscious long-term investors, VGE is typically the first-mentioned emerging markets option on the ASX.
Does DHHF already include emerging markets? Yes. DHHF holds approximately 12% in HEMQ (BetaShares Emerging Markets ETF), which tracks a MSCI Emerging Markets index. Investors holding DHHF already have embedded emerging markets exposure without needing to buy a separate fund.
How risky are emerging market ETFs? Emerging market ETFs are generally considered higher risk than developed market ETFs. They experience greater volatility, are sensitive to China regulatory risk, and are affected by US dollar strength (which makes dollar-denominated debt more expensive in local currencies). During global risk-off periods (crises), emerging markets typically fall more sharply than developed markets.
This article provides general financial information only. Emerging market investments involve higher risk than developed market investments. For advice tailored to your situation, speak with a licensed financial adviser. You can find one through the ASIC financial advisers register or MoneySmart.