Why You’re Wrong About Emerging Markets

22 May 2026: Whatever you think about Emerging Market (EM) equities, you’re probably wrong. The popular misconception is that EM indices are a single, monolithic, low-tech, high-risk/potential-high-reward bucket. The reality is far more nuanced and far more interesting – especially if you’re building a well-diversified investment portfolio.

“When it comes to offshore diversification, most local investors automatically think of Developed Market (DM) indices, such as the S&P 500 or the MSCI World Index,” says Nonhlanhla Mphelo, Senior Portfolio Manager at Satrix. “And while these indices have added significant value to investor portfolios since 2010 (largely on the back of tremendous technology sector growth), looking ahead, investors may be well served by adding a diversified global equity exposure in the form of emerging market equities.”

Common Misconceptions about Emerging Markets

EMs are often characterised as politically unstable, commodity-driven and highly dependent on global cycles. But while these risks remain relevant in parts of the universe, this view is increasingly outdated. “EMs are diverse, spanning multiple regions and development stages, with many economies becoming more domestically driven,” says Mphelo. “They are also home to globally competitive companies, resulting in a wide range of risk and return profiles across the asset class.”

You’re looking at regions like Asia-Pacific (including countries like China, India, South Korea, Taiwan, etc), Latin America (Brazil, Chile, etc), Europe (Czech Republic, Poland, Turkey, etc), Africa (Egypt, South Africa, etc) and the Middle East (Qatar, Saudi Arabia, UAE, etc). When you’re investing in EM funds, all these countries (and others) represent a diverse range of geographies and industries.

Mphelo says that EMs embody both growth potential and risk. “On the opportunity side, many EM economies typically benefit from faster economic growth as they develop,” Mphelo explains. “This growth is driven by favourable demographics, rising consumption, infrastructure investment, and expanding labour forces, as populations tend to be younger and growing.”

Sectors Covered By Emerging Markets

Another false assumption is the idea that EM funds are light on tech and heavy on resources. In fact, EMs are diversified across all Global Industry Classification Standard (GICS) sectors.

MSCI data (30 April 2026) shows the Emerging Markets Index has higher weightings in Information Technology (36.76% vs 27.61% in MSCI World Index) and Financials (19.66% vs 15.99%), while Healthcare (2.72% vs 8.77%) and Industrials (7.52% vs 11.76%) are lower.

“This reflects the structure of EM economies, where technology hardware, financial services, commodities, and materials play a more prominent role,” says Mphelo.

How EMs Enhance A Diversified Portfolio

When you’re building a portfolio, choosing between EM and DM funds shouldn’t be an either/or debate. If anything, EM funds provide a compelling complement to those well-known DM indices – whether it’s a broad EM option like the Satrix MSCI Emerging Markets Feeder ETF or the Satrix MSCI EM ESG Enhanced Feeder ETF, or a country-specific EM fund like the Satrix MSCI China Feeder ETF or the Satrix MSCI India Feeder ETF.

“While DMs are dominated by large, mature companies and economies, EM exposure offers access to potentially faster‑growing economies, broader geographic diversification – and, in many cases, more attractive valuations,” says Mphelo. “Analysts have in recent years pointed to stretched valuations in DM equities, contrasted with EM Market equity valuations more in line with long-term aggregates.”

Within the Satrix balanced funds, EM equities are viewed as a source of meaningful long‑term upside and diversification. As a result, EM equity exposure was increased above the approximate 12% MSCI ACWI benchmark levels in the 2024 Strategic Asset Allocation review to roughly 20% of the global equities segment.

“This positioning was based on higher expected returns due to lower valuations,” says Mphelo, comparing the MSCI World’s price-to-earnings (P/E) ratio of approximately 24.4 to the MSCI Emerging Markets P/E of 18.5 as at 30 April 2026. “Our belief was also that EMs offered more attractive economic growth prospects and attractive upside potential, while adding important sector diversification from the high-tech exposure offered by DM equities,” she explains.

“Emerging Markets offer significant long‑term potential and have delivered competitive performance relative to the MSCI World and S&P 500 over certain periods,” Mphelo concludes. “As part of a diversified portfolio, EM exposure can provide both growth opportunities and diversification benefits. And while volatility is higher with EMs, patient investors who can tolerate risk may benefit from the structural growth trends present across EM economies, including Africa and beyond.”

Disclaimer

Satrix Investments (Pty) Ltd is an authorised Financial Service Provider (FSP) in terms of the Financial Advisory and Intermediary Services Act, 2002 (FSP no 43670). Satrix Managers (RF) (Pty) Ltd (Satrix) is an authorised Financial Service Provider (FSP no 15658) and a registered and approved Manager in Collective Investment Schemes in Securities. Collective investment schemes are generally medium- to long-term investments. With Unit Trusts and ETFs, the investor essentially owns a “proportionate share” (in proportion to the participatory interest held in the fund) of the underlying investments held by the fund. With Unit Trusts, the investor holds participatory units issued by the fund while in the case of an ETF, the participatory interest, while issued by the fund, comprises a listed security traded on the stock exchange. ETFs are index tracking funds, registered as a Collective Investment and can be traded by any stockbroker on the stock exchange or via Investment Plans and online trading platforms. ETFs may incur additional costs due to being listed on the JSE. Past performance is not necessarily a guide to future performance, and the value of investments / units may go up or down. A schedule of fees and charges, and maximum commissions are available on the Minimum Disclosure Document or upon request from the Manager. Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. A feeder fund is a portfolio that invests in a single portfolio of a collective investment scheme, which levies its own charges, and which could result in a higher fee structure for the feeder fund. International investments or investments in foreign securities could be accompanied by additional risks such as potential constraints on liquidity and repatriation of funds, macroeconomic risk, political risk, foreign exchange risk, tax risk, settlement risk as well as potential limitations on the availability of market information. The manager has the right to close the portfolio to new investors in order to manage it more efficiently in accordance with its mandate. 

Visit www.satrix.co.za for more information.