Exchange-traded funds that focus on emerging markets invest in countries known for their high economic growth, increasing wealth and youthful, expanding populations.
Overall, emerging markets ETFs can be an attractive choice for investors seeking higher growth potential and diversification.
In our list, the iShares MSCI Emerging Markets ex-China ETF was excluded, despite being the world’s largest emerging market ETF with a record $1 billion net inflow in the first half of 2023.
This decision was based on favourable growth and valuations observed in other markets.
1. iShares MSCI UAE ETF
The iShares MSCI UAE ETF is a diversified investment vehicle that focuses on both growth and value stocks.
The ETF employs a representative sampling technique. One of the prominent holdings within the iShares MSCI UAE ETF is Emaar Properties, a real estate company in the UAE.
Despite oil and gas contributing about 30 per cent of the UAE’s gross domestic product, the country has a diverse economy.
The UAE's GDP grew by 29.97 per cent to $507.54 billion from $390.52 billion between 2017 and 2022.
Beyond its oil-rich reputation, the UAE plays a vital role in trade, finance, tourism and manufacturing. Its economy has exhibited consistent growth and is expected to maintain this trajectory in the future.
As of July 24, the iShares MSCI UAE ETF’s net assets amounted to $40.9 million.
2. iShares MSCI Saudi Arabia ETF
As the largest economy in the Middle East and the 18th largest in the world based on nominal GDP, Saudi Arabia has historically heavily relied on oil and gas, which accounted for about 80 per cent of government revenue and 40 per cent of GDP, followed by manufacturing and services.
As part of Vision 2030, domestic demand is expected to rise significantly, driven by a growing Saudi population and increasing incomes.
Saudi Arabia's GDP grew by 54.99 per cent to $1.1 trillion from $714.99 billion between 2017 and 2022.
As of July 24, the fund’s net assets amounted to just over $1 billion, indicating its considerable size.
Despite a tough year in 2022, the fund managed an outflow of less than 1 per cent of its assets under management.
Liquidity should not be a concern and institutional ownership has shown significant growth in 2022, nearly recovering from the 2020 sell-off and a less active 2021.
3. iShares MSCI India ETF
India is home to the world's fifth-largest economy based on nominal GDP, supported by services, manufacturing and agriculture.
In recent years, India has witnessed remarkable growth, with an 8.7 per cent expansion in 2022, to become one of the fastest-growing economies.
The country has seen a substantial foreign direct investment net inflow of $19 billion since March, contributing to positive momentum in its markets.
Notably, India has received more than 85 per cent of all fund flows into key emerging Asian markets (excluding mainland China) since April, and its market valuation relative to the region has surpassed one standard deviation above the mean.
Foreign portfolio investors have displayed interest in Indian equities, with June recording the highest number of purchases in 2023. These investors have remained net buyers for the fourth consecutive month.
Additionally, financial services experienced notable inflows of $4.36 billion, representing 31.63 per cent of the total flows during the first half of July.
The International Monetary Fund forecasts that India's economy will ascend to become the world's third-largest by 2027.
India’s GDP increased to $3.38 trillion last year from $2.65 trillion in 2017, an increase of 30.8 per cent.
Furthermore, the fund’s expense ratio is an attractive 0.64 per cent, making it an appealing investment option for those seeking exposure to India's flourishing economy with a socially responsible focus.
4. iShares MSCI Mexico ETF
Mexico has seen a remarkable performance this year, with the MSCI Mexico Index surging by 24.2 per cent.
This growth can be attributed to factors such as the resilient peso, pension reforms and a prudent central bank.
As the US looks to reduce reliance on China, Mexico stands to benefit from nearshoring. American corporations are seeking to diversify supply chains, reduce transportation costs and leverage Mexico's low-cost labour pool.
Mexico’s GDP has grown steadily in recent years, increasing by 29.76 per cent to $1.65 trillion from $1.27 trillion between 2017 and 2022.
Mexico's future outlook appears promising, driven by structural tailwinds like nearshoring, pension reform, improving international relations and political stability.
With strategic investments in energy, infrastructure and human capital, the country is well-positioned for growth across all sectors of the economy.
Vijay Valecha is chief investment officer at Century Financial