The World Bank Group just released its Global Economic Prospects report, which evaluates the last 25 years of the global economy. According to the report, emerging markets and developing economies (EMDEs) now account for 45% of global GDP.
This is up from 25% in 2000. According to the World Bank Group, collective growth from the three largest emerging markets — China, India and Brazil — has driven this increase.
The three have played a major role in expanding the global footprint and influence of EMDEs: China, as the largest EMDE and a key driver of global growth in the past quarter century; India, as the fastest-growing large economy in recent years; and Brazil, as the leading exporter of agricultural products.
The report predicts these economies will continue to play an important role globally. However, the rate of growth is predicted to slow slightly.
Trends in productivity, investment, and labor supply, among the fundamental drivers of growth, suggest that EMDEs' potential growth will slow to about 4 percent in the 2020s, on average, compared to more than 5 percent in the 2010s.
For Australian investors looking to gain exposure to these markets through ASX exchange-traded funds (ETFs), here are two options to consider.
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Vanguard FTSE Emerging Markets Shares ETF (ASX: VGE)
This ASX ETF seeks to track the return of the FTSE Emerging Markets All Cap China A Inclusion Index (with net dividends reinvested) in Australian dollars before taking into account fees, expenses and tax.
The index essentially tracks the performance of large, mid and small-cap stocks in emerging markets.
At the time of writing, the VGE ETF has more than 5,800 holdings. Its largest exposure is China (29.0% of the ETF's stocks), India (23.6%) and Taiwan (20.6%). It also has exposure to Brazil (4.3%), Saudi Arabia (4.1%) and South Africa (3.4%).
It has risen 18.43% in the last 12 months and has a management fee of 0.48% p.a.
The fund has significant exposure to the information technology and financial sectors.
iShares International Equity ETFs – iShares MSCI Emerging Markets ETF (ASX: IEM)
This ASX ETF offers exposure to more than 800 large and mid-sized companies in emerging markets. These include China (27.66%), Taiwan (19.62%), India (19.34%), South Korea (8.97%), Saudi Arabia (4.13%) Brazil (4.03%).
It also has significant exposure to the information technology and financial sectors.
The fund has grown 18.47% over the last 12 months and has a management fee of 0.69% p.a.
These two ASX ETFs track very similar markets. They share eight out of the ten largest holdings, which is one reason their performance has been similar.
One major difference is the number of total holdings in the funds, with VGE holding roughly 5,000 more stocks.
Trump Tariffs
Back in December 2024, then-US president-elect Donald Trump threatened to place tariffs on some of these developing economies.
According to the BBC, Trump threatened to impose 100% tariffs on a group of nine nations — including China, Brazil and India — if they were to create a rival currency to the US dollar.
No mention was made of this tariff during his inauguration. However, it's worth noting for anyone considering these markets as an investor.
The S&P/ASX 200 Index (ASX: XJO) had a rollercoaster first day yesterday under Trump's new administration.
This could be a sign of what's to come in the short term as the market waits to see what pre-inauguration promises are acted upon.
