An emerging markets fund is not a bet on emerging economies. It is a bet on a specific, rapidly changing basket dominated by four countries and one industry — and the composition has shifted enough over the past decade that the fund your neighbour bought in 2015 owns something quite different from the one you would buy today.
This article is for informational and educational purposes only. It is not financial advice, investment advice, or a recommendation to buy, sell, or hold any security, cryptocurrency, or financial product. Always verify data with official sources before making financial decisions.
Country weights in MSCI EM, ranked
Short answer: The index is concentrated in four markets — China, India, Taiwan and South Korea — which together account for the large majority of it. Everything else, including all of Latin America, Eastern Europe, the Middle East, Africa and Southeast Asia, shares the remainder. Buying “emerging markets” means buying North Asian technology plus India plus China, with a modest tail.
How China’s weight fell and India’s rose
China peaked at well over a third of the index during the last decade. A prolonged period of underperformance, regulatory intervention in large technology platforms and a property sector downturn reduced that share substantially.
India rose over the same period through the opposite mechanism: sustained earnings growth, domestic equity inflows and rising foreign participation. The two moves are related only through arithmetic — index weights are relative, so India’s share rose partly because China’s fell.
The consequence for anyone holding an EM fund throughout is that their China exposure fell and their India exposure rose without any decision on their part. Index rebalancing quietly changed the portfolio.
Taiwan and Korea: the semiconductor block hiding inside “EM”
This is the most consequential thing an EM investor should understand, and it appears in no fund name.
Taiwan and Korea together represent a large index share, and their weight is concentrated in a handful of semiconductor and hardware companies. The single largest holding in most EM funds is a Taiwanese chip manufacturer, and it alone frequently exceeds the entire weight of Latin America.
That means EM performance is substantially a function of the global semiconductor cycle — the same cycle driving US technology earnings. An investor buying EM to diversify away from AI-related concentration is buying a different set of companies with correlated exposure to the same end demand. The 2026 memory and AI hardware cycle has been a significant contributor to EM returns for exactly this reason.
Ex-China funds and what removing a quarter of an index does
EM ex-China products were launched to let investors keep emerging market exposure while managing China-specific policy risk separately.
Removing China does more than delete a country. It mechanically increases the weight of everything else — which means an ex-China fund is more concentrated in Taiwanese and Korean semiconductors than a standard EM fund, not less. It also removes the largest source of exposure to Chinese domestic consumption, which was one of the few genuinely differentiated economic exposures in the index.
Whether that trade is worthwhile depends on the investor’s reason for holding EM. For policy risk management it works. For diversification it frequently makes the underlying concentration worse.
Valuation, earnings revisions, and currency
The three markets present quite different propositions. India has traded at a persistent premium to the EM average, justified by growth and domestic flows and vulnerable if either falters. China has traded at a deep discount reflecting policy and governance risk, which means returns depend heavily on sentiment toward that risk rather than on earnings alone. Taiwan and Korea sit between the two and trade primarily on the semiconductor cycle.
Currency adds a separate layer to each. The rupee, renminbi and won respond to different drivers, and a dollar-based investor holds all three exposures simultaneously without choosing them.
A-shares, H-shares, ADRs
Chinese companies can be owned through several structures and the differences are practical rather than technical.
- A-shares. Listed in Shanghai and Shenzhen, historically dominated by domestic retail investors. Included in MSCI EM at a partial inclusion factor rather than full weight.
- H-shares. Listed in Hong Kong, accessible to foreign investors, often trading at a discount to the same company’s A-shares.
- ADRs. US-listed depositary receipts, typically structured through variable interest entities that give economic exposure rather than direct ownership — a structure that carries its own legal and delisting risk.
Mini glossary
- Inclusion factor. The proportion of a market’s capitalisation an index provider counts, used to phase in access-restricted markets.
- Float adjustment. Excluding shares not available to public investors, such as government or founder stakes.
- VIE. Variable interest entity — a contractual structure giving foreign investors economic exposure to a Chinese company without legal ownership.
What this article does not conclude
This is a description of index composition, not a view on which market will perform better. Weights change continuously with relative performance and periodic methodology reviews, and the figures described are approximate.
MSCI publishes current index composition and country weights on its website, and every fund publishes its holdings. Check both before assuming what a given product contains.