Investors plough billions into emerging-market ETFs as they reassess exposure to US assets
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In January alone, the MSCI Emerging Market Index gained 8.8 per cent in what was its best start to a year since 2012.
PHOTO: THE BUSINESS TIMES
Sao Paulo - Investors are pouring new money into exchange-traded funds (ETFs) tracking emerging-market (EM) assets, extending a US$42.8 billion (S$54.5 billion) streak over 15 consecutive weeks as many reassess their exposure to US assets.
Inflows to US-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totalled US$6.5 billion in the week ended Jan 30, compared with gains of US$6.85 billion in the previous week, according to data compiled by Bloomberg.
So far in 2026, inflows have totalled US$24.9 billion. In January alone, the MSCI Emerging Market Index gained 8.8 per cent in what was its best start to a year since 2012. Investors have been allocating heavily to risk assets in 2026 as demand for AI stocks surges and uncertainties in the US and a weaker US dollar drive traders to rethink their geographical exposure.
“EM has been an unloved asset class for such an extended period of time that even taking into account the inflows year to date, you’re catching up in a world in which there’s newfound appreciation for geographic diversification in portfolios,” Dr Alejo Czerwonko, chief investment officer for EM Americas at UBS Global Wealth Management, said in an interview in Sao Paulo.
The US$139 billion iShares Core MSCI Emerging Markets ETF (IEMG) led gains across the region, recording over US$8.9 billion in fresh capital in January in its biggest monthly inflow since its inception back in 2012. That was followed by iShares MSCI Emerging Markets ETF, with inflows totaling US$4.3 billion in that same time span as investors scoured different investment vehicles in hopes to diversify away from the world’s largest economy.
UBS WM sees a potential for developing-world assets to continue to outperform in 2026 as the category attracts new flows.
“We see in a lot of client portfolios that there’s a lot of cash on the sidelines and, in an environment where you have still elevated inflation, that is very costly not to invest,” Dr Ulrike Hoffmann-Burchardi, chief investment officer for Americas and global head of equities at UBS Global Wealth Management, said in an interview. “Our biggest message to clients is go into the areas of the market that diversify you further and could get you a better rate of return.”
Despite a broad sell-off on the last day of January, pockets of the emerging world still recorded some inflows, as investors saw the dip as a buying opportunity. IEMG saw US$392 million of inflows on Jan 30, ranking at the top of the list, while the US$5 billion VanEck J. P. Morgan EM Local Currency Bond ETF stood out, recording US$203 million in its best single-day gain since 2017.
Mr Czerwonko said the main pillar going into 2026 will be diversification. That, in turn, will help boost emerging markets ranging from Asia to Latin America – especially as many investors are still underallocated across many pockets of the developing world.
“When you see everything that is going on, many are wondering ‘Am I appropriately diversified from a geographic standpoint?’ And for a lot of folks out there, the answer is not yet,” Dr Czerwonko added. BLOOMBERG
