Ex China, emerging markets are a motley crew.
MSCI Emerging Markets Index
The MSCI Emerging Markets index consists of 23 countries. At about 28% of the total, China is the largest component. After that come, in order, South Korea at 15%, Taiwan at 12%, and India and Brazil at 8% each. The rest average 1.6% apiece.
The biggest sectors are IT and (mostly state-controlled) Financials, at about a quarter of the index each, and Natural Resources at 15%.
The five largest individual components of the index, comprising 15% of the total are, again in order: Samsung Electronics, TSMC, Tencent, Alibaba and China Mobile. All of these can be bought as individual stocks either in Hong Kong or in the US.
To my mind, the most foreign investor-friendly country of the bunch is mainland China. The rest are either not open to foreigners or are subject to the heavy hand of government control. A big virtue of the index is that we can obtain exposure to 22 problematic places for foreigners to invest in one package and in a highly liquid form.
The big question is whether we want this exposure or not. The merits of individual countries/securities aside, this has typically been a good thing when the world economy is expanding rapidly and when trade is in a high-beta relationship with overall growth (as it has been throughout almost all my investing career). It has typically been a bad thing when the world is in recession.
At present, I don’t see the positive case as particularly compelling. In addition, the high-beta relationship between trade and growth which has worked to the benefit of emerging nations for decades has been showing recent signs of breaking down. So it’s at least thinkable that the payoff from taking the risk of investing in the more frontier-ish of these countries will be less than in the past. Personally, I’d prefer to own developed markets + China right now.