Best Emerging Markets ETFs on the ASX

An Emerging Markets ETF invests in companies across 24+ developing economies that are transitioning toward more advanced financial markets and higher per-capita income. On the ASX, key options include VGE (Vanguard, FTSE Emerging Markets, ~5,600 stocks, 0.48% p.a.) and IEM (iShares, MSCI Emerging Markets, ~1,400 stocks, 0.67% p.a.). Top country weights are typically China (25–30%), India (18–22%), Taiwan (16–18%), South Korea (in MSCI only), and Brazil (5–6%), with major holdings including TSMC, Tencent, Samsung, Reliance Industries, and Alibaba.

The critical difference between VGE and IEM is their underlying index - FTSE (VGE) classifies South Korea as a developed market and excludes it, while MSCI (IEM) includes South Korea as emerging, significantly changing your Samsung and Hyundai exposure. VGE is cheaper (0.48% vs 0.67% p.a.) and holds far more stocks (~5,600 vs ~1,400), offering broader diversification. Also note that no AUD-hedged emerging markets ETF is available on ASX, and these funds have wider bid-ask spreads and lower liquidity than developed market equivalents, so use limit orders rather than market orders.

China has dominated emerging market indices for years, but regulatory crackdowns (Ant Group IPO cancellation, tech sector restrictions), property market crises (Evergrande), and geopolitical tensions have caused significant underperformance since 2021, prompting investors to question its investability. India has emerged as the favoured alternative, offering a demographic dividend (median age ~28), growing middle class, and strong GDP growth, with Nifty 50 outperforming Chinese benchmarks substantially over five years. Within VGE and IEM, index rebalancing is gradually shifting weight from China toward India, but investors wanting a specific tilt can consider dedicated India ETFs like IIND (0.69% p.a.) on ASX.

Risks are materially higher than developed markets - including political instability, capital controls, currency devaluations, weaker corporate governance, and regulatory unpredictability, as demonstrated by China's sudden policy changes and Russia's complete removal from indices after 2022 sanctions. Emerging markets can underperform developed markets for extended periods (the 2010–2020 decade was largely lost returns versus the S&P 500), testing investor patience. These ETFs suit Australian investors with a long time horizon (10+ years), existing core developed market holdings (VGS, IVV), and a conviction in the demographic and urbanisation growth thesis of developing economies.