One of the big 2025 stories has been the resurgence of emerging market equities. As of September 9, the MSCI Emerging Markets Index was outpacing the S&P 500 by a nearly 2-to-1 margin.
On a stand-alone basis, that data point is impressive. But it’s all the more noteworthy when considering the emerging markets gauge spent years underperforming domestic stocks. This year’s outperformance by developing world stocks is also worth highlighting. That’s because it’s been pieced together against the backdrop of volatile U.S. trade policy.
Put it all together and it’s fair to say the WisdomTree Emerging Markets ex-State-Owned Enterprises Fund (XSOE) deserves some kudos for surging nearly 21% since the start of the year. That confirms the efficacy of owning emerging markets companies not controlled by national governments. That’s one positive attribute sported by XSOE. But the ETF could have more in store for investors in the waning stages of 2025.
XSOE Could Be Excellent EM Idea
Already up more than 20% year-to-date, the nearly $2 billion XSOE is delivering for investors. That stellar run is attributable in part to the right country mix. For example, the WisdomTree ETF devotes about 34.60% of its roster to China and South Korea stocks.
“In China, tariff de-escalation and government efforts to revive consumption and investor confidence have boosted near-term sentiment,” according to BlackRock. “Elsewhere, country drivers often tie back to longer-term [forces. Korea] has gained from cheap valuations and its role in the AI and chip supply chain.”
Speaking of leverage to the AI supply chain, Taiwan checks that box, too. As a result, the MSCI Taiwan Index is up 19% this year. That performance is benefiting XSOE investors. And that’s because Taiwan is the ETF’s second-largest country exposure, at 22.11%.
As has been widely detailed, emerging markets stocks are also being supported by the weak dollar. That scenario is poised to extend, because the latest reading of the Producer Price Index showed enough cooling that the Federal Reserve is highly likely to lower interest rates next week.
Beyond the weak dollar catalyst, emerging markets assets are supported by a largely favorable macroeconomic outlook in many of those countries. Those include India (21.328% of the XSOE roster). Plus, there’s the catalyst of megatrends.
Major Players
“Taiwan and South Korea are major players in developing the semiconductors needed for the AI buildout, and China is advancing its own AI technology,” added BlackRock.
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