Emerging markets offer compelling investment opportunities, and a strategic approach involves considering vehicles that selectively engage with these diverse economies. The iShares MSCI Emerging Markets ex China ETF (EMXC) stands out as an investment option, providing investors with focused exposure to large and mid-capitalization companies within emerging markets, specifically excluding those based in China. This deliberate exclusion has been a key factor in its historical performance, leading to a notable divergence from broader emerging market benchmarks that include Chinese equities. Since its inception in July 2017, EMXC has demonstrated superior returns compared to the iShares MSCI Emerging Markets ETF (EEM), primarily because it has sidestepped the underperformance of Chinese stocks.
A significant aspect of EMXC’s portfolio structure is its substantial allocation to Taiwan Semiconductor Manufacturing Company (TSM). This concentration means that TSM’s performance can exert a considerable influence on the overall returns of EMXC. Consequently, investors evaluating EMXC should conduct a thorough analysis of TSM's prospects and market position. The rationale behind EMXC's exclusion of China stems from observations regarding China's economic policies. Historical trends suggest that China's government has shown a reluctance to fully embrace free-market principles, a factor widely believed to have contributed to its equity market's underperformance relative to other emerging economies. This policy stance is not expected to undergo significant changes in the near future, reinforcing the strategic advantage of an ex-China investment approach for those seeking growth in emerging markets.
By navigating the complexities of global markets with a clear strategy, investors can align their portfolios with regions demonstrating stronger growth potential and more favorable governance structures. The conscious decision to invest in emerging markets while excluding China through EMXC reflects a belief in the resilience and potential of other developing economies. This approach not only seeks to capitalize on the growth of diverse emerging markets but also aims to mitigate risks associated with specific geopolitical and economic policies in China.
In conclusion, the iShares MSCI Emerging Markets ex China ETF presents a well-reasoned investment proposition for those aiming to participate in the growth story of developing nations without the specific challenges currently associated with the Chinese market. Its track record of outperformance against broader indices, largely due to its carefully curated portfolio, supports a positive outlook. The continued attractiveness of emerging market valuations, coupled with the strategic avoidance of Chinese equities amidst ongoing global tensions, positions EMXC favorably. The disciplined selection process and the focus on countries that are more aligned with free-market principles foster an environment conducive to sustained growth and robust returns. Therefore, EMXC merits consideration for investors seeking an optimistic and strategically sound entry into emerging markets, offering a pathway to foster global economic participation and benefit from a diversified international portfolio.
