Looking across the investing landscape, one theme that has stood out to start 2024 has been emerging markets equities. Perhaps just short of consensus status, emerging markets look appealing especially when compared to U.S. equity markets. With U.S. markets perhaps jumping the gun on rate cuts, for example, and still looking over-valued, emerging markets stand out. They also appeal on their own terms, however, available in an EM equities ETF like KEMX.
Emerging markets equities of course contain many different economies, markets, and firms. From huge Indian car companies to mid-cap commodities firms in Indonesia, emerging markets vary significantly. That said, many firms that fall into the emerging markets share attractive valuations.
At the same time, they’re also seeing positive macro trends in changing supply chains, per a recent analysis at IFA Magazine. Just as middle classes in countries like India are gaining in purchasing power, so too are supply chain links in those countries gaining significance. With firms moving supply chain links from China specifically, markets in Vietnam and Malaysia, for example, benefit.
That China link is playing a role, as foreign investors, who perhaps are selling too quickly on China, are nevertheless boosting flows into emerging markets. Add in a better inflation outlook for emerging markets and steadily improving macro conditions, and an EM equities ETF can appeal especially given the amount of uncertainty U.S. markets are facing, including potential rate cut disappointment.
That’s where the KraneShares MSCI Emerging Markets ex China Index ETF (KEMX) comes in. The EM Equities ETF tracks the EGAI Emerging Markets ex-China Index for a 24 basis point (bps) fee. The strategy will hit its fifth year of operation this April, and has returned 8.3% over the last year.
KEMX tracks an index of large and mid-cap firms in emerging markets outside of China, weighting holdings by market cap. Taken together, with EM equities appealing, it may be one solid option to watch as 2024 gets started in earnest.
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