Emerging markets account for around 40% of global economic output but only about 10% of the world’s investable stock market. That gap is the whole story, and the reason most investors who chase emerging market growth end up disappointed. A properly diversified portfolio holds emerging markets at market weight, not more.
If you spend any time reading the financial press, you’ll have seen the case for emerging markets made with some regularity. The BRICS bloc now accounts for more of global GDP than the G7. India is growing faster than every major developed economy. China’s stock market trades at half the price-earnings ratio of the US. The story writes itself, and outlets like the Motley Fool or the weekend money pages write it often.
What’s striking is how rarely the question actually makes its way into the meeting room. Most clients we work with aren’t asking whether they should tilt more toward emerging markets. But the story is in the air. And when markets have a bad year, or a particularly good one, the question does surface, usually in the form: should we be thinking about this?
It’s a reasonable question. It’s also one of the most consistently expensive questions in investing, mostly because the answer that sounds right is usually the wrong one.
What are emerging markets, and what is BRIC?
Emerging markets are the stock markets of countries that are still developing economically: rapidly growing, often commodity-rich, but with less mature financial systems and weaker governance than developed economies like the UK, US, or Japan. The term was coined in 1981 by Antoine van Agtmael of the International Finance Corporation, as a gentler replacement for “third world.”
The acronym most people remember, BRIC, was coined in 2001 by Jim O’Neill, then chief economist at Goldman Sachs, to identify Brazil, Russia, India, and China as the four large economies most likely to reshape global growth. South Africa joined the group in 2010, making it BRICS. In 2024 the bloc expanded to eleven countries, adding Iran, Egypt, Ethiopia, the UAE, Indonesia, and Saudi Arabia.
By purchasing-power terms, the expanded BRICS now accounts for roughly 40% of global GDP, ahead of the G7’s 30%. If you stopped reading there you would conclude that emerging markets ought to make up about 40% of any sensible global portfolio. But that’s where most investors go wrong.
Why economic size isn’t the same as stock market size
Emerging markets represent roughly 40% of global economic output but only around 10% of global equity market capitalisation. That gap exists because a country’s GDP reflects everything the economy does, including state-owned enterprises, unlisted companies, and informal economic activity, whereas stock market weight reflects only what is publicly listed, free-float adjusted, and available to foreign investors.
A globally diversified portfolio, which is where we start philosophically, therefore holds emerging markets at around 10% of the equity allocation. That is not a mistake or an oversight. It reflects where capital can actually be deployed, and where investors are actually able to own shares.
There’s a second point worth making. When investors say “emerging markets,” they often picture a broad, diverse basket of growing economies. The reality is more concentrated. China makes up around 24% of the MSCI Emerging Markets Index. Taiwan is 22%. South Korea is 18%. Three countries account for nearly two-thirds of the entire index. Overweighting emerging markets, in practice, means overweighting a handful of North Asian semiconductor and technology companies. It is not a broad bet on the developing world.
Why the performance record should give any serious investor pause
The honest story about emerging markets is one of decade-long streaks that run in opposite directions. Between 2000 and 2009, the MSCI Emerging Markets Index returned 9.8% per year, while the S&P 500 lost nearly 1% a year. Investors in emerging markets during that period looked like geniuses.
Between 2010 and 2019, the same index returned 3.7% per year, while the S&P 500 returned 13.6%. The same investors, having done nothing differently, looked like fools.
Pull the lens back to the full life of the MSCI Emerging Markets Index, since it was launched on 1 January 2001. Over that twenty-five-year period, the MSCI EM has returned roughly 7.6% per year. The S&P 500 has returned roughly 7.8% per year. Emerging markets and US stocks have delivered almost identical long-run returns.
But they have not delivered those returns in the same way. The annualised volatility of emerging markets over that period has been 22%, compared to 14% for the US and 16% for other developed markets. Same destination, much bumpier road. For investors in the accumulation phase that bumpiness is emotionally expensive but manageable. For retirees drawing an income, it matters a great deal more. Higher volatility in the decumulation phase destroys sustainable withdrawal rates, and that’s well-evidenced in the research.
“But I already own emerging markets through my FTSE and S&P holdings, don’t I?”
This is the most sophisticated version of the push-back I hear, and it’s half right. The FTSE 100 derives roughly 75% of its revenue from outside the UK, and a material share of that comes from emerging economies. Shell, BP, HSBC, Unilever, Diageo, Rio Tinto, and GSK all generate significant earnings in developing markets. MSCI’s own research shows that companies in the MSCI World Index, a pure developed-markets index, have a revenue exposure to emerging markets of around 21%.
In other words, a portfolio of developed-market shares is already about a fifth emerging-market by economic footprint, before you buy a single emerging-market fund. MSCI has even built an index, the MSCI World with EM Exposure Index, that selects the 300 developed-market companies with the highest share of emerging-market revenue. That index delivers close to 50% economic exposure to emerging markets, using only companies listed in places like London, New York, and Zurich.
So the revenue exposure argument is a legitimate reason not to overweight emerging markets. It is a weaker argument for excluding them altogether, for two reasons.
The first is that revenue exposure is not the same as return exposure. Unilever’s share price is priced by Western investors, regulated by Western regulators, and moves in sympathy with Western sentiment, even though most of its growth comes from India, Indonesia, and Brazil. In a market drawdown, Unilever behaves like a Western consumer staples stock, not like a basket of emerging-market consumer companies.
The second is that the largest emerging-market-listed companies, among them Samsung, TSMC, Tencent, Reliance, Alibaba, and Infosys, are themselves global, technology-led businesses that you cannot own via any developed-market route. If you want exposure to the companies capturing the bulk of emerging-market growth for their own shareholders, you have to own emerging-market-listed equity directly. That is the case for holding emerging markets at market weight. It is not the case for holding them at more than that.
Russia, 2022: the case study for why country limits matter
In March 2022, in the aftermath of the invasion of Ukraine, MSCI announced that the Russian equity market had become “uninvestable” and reclassified Russian stocks at effectively zero value across all of its indexes. Russia had represented around 3% of the MSCI Emerging Markets Index at the start of that year. For investors holding Russian shares directly, or Russian-heavy emerging market funds, the effect was immediate and total. Positions could not be sold. Capital could not be repatriated. The market was closed to foreigners.
The Russia case is not a reason to avoid emerging markets altogether. It is a reason to hold them at market weight and globally diversified, so that a single country’s political failure doesn’t become a portfolio-ending event. A client who had been persuaded, in 2021, to tilt heavily toward Russia because it looked cheap would have watched that allocation go to zero with no way out. A client holding emerging markets at 10% of equities, diversified across twenty-four countries, felt a modest dent that was swallowed by the broader portfolio within weeks.
Concentration is the risk that gets overlooked because it rarely shows up in the brochure. It shows up in the wreckage.
Where emerging markets sit now, and why we don’t abandon them
There is a case, right now, for why emerging markets deserve the allocation they already have. As of the start of 2026, the MSCI Emerging Markets Index is trading at a forward price-to-earnings ratio of around 13.4, compared with more than 21 for the US. That is one of the widest valuation gaps in two decades. Emerging-market corporate credit quality has improved. Correlations between emerging and developed markets have fallen, touching some of their lowest levels in twenty-five years during recent periods of stress. None of this is a forecast. It is simply the backdrop against which we hold the allocation we hold.
The temptation, always, is to act on this backdrop. Either by buying more emerging markets because the valuation gap looks compelling, or by selling them because the previous decade felt painful. Both moves tend to be wrong. The first is performance-chasing dressed up as contrarianism. The second is loss aversion dressed up as prudence.
What good advice actually does
At Juniper, for the clients we serve, from retirees to business owners to senior professionals, the approach to emerging markets is simple and deliberate.
We hold them at global market weight, somewhere around 10% of the equity allocation, as part of a portfolio built to weather storms. We don’t overweight on the basis of GDP growth arguments, because the evidence that GDP growth predicts equity returns is remarkably weak. We don’t underweight on the basis of recent underperformance, because the one thing a lost decade tends to be followed by is the decade in which the opposite asset class underperforms. We don’t abandon the allocation during Russia-style shocks, because the whole point of diversification is that no single country can break the plan.
And we don’t pretend that the revenue exposure of your FTSE 100 holdings makes a dedicated emerging-markets allocation redundant, because, at the level of how share prices actually behave, it doesn’t.
Most of what people call “an emerging markets strategy” is really an attempt to guess which decade we are about to enter. The honest version of the answer is that we don’t know, we can’t know, and building a retirement around getting that call right is not a plan. Holding the world at its weight, and staying in the chair, is.
The risk isn’t missing the next emerging markets boom. The risk is letting a story about the next boom, or the last one, change a plan that was built to work regardless of which one comes first.
Want to stress-test how your portfolio is positioned?
If you’d like a clear view of how your portfolio is diversified globally, including its real exposure to emerging markets across both direct holdings and developed-market revenue, a portfolio review with one of our advisers is where to start.
Frequently asked questions
What percentage of a portfolio should be in emerging markets?
A globally diversified portfolio typically holds emerging markets at roughly 10% of the equity allocation, matching the weight of emerging markets in the global investable stock market. Some portfolios go slightly higher or lower depending on risk profile and investment philosophy, but holdings significantly above or below that weight represent a deliberate bet on future outperformance or underperformance, a bet the long-run evidence does not support making with client capital.
Does investing in US stocks already give me emerging market exposure?
Partly. Companies in the MSCI World Index generate around 21% of their revenue from emerging markets, and the FTSE 100 derives roughly 30% of its revenue from Asia, Africa, and Latin America combined. However, share prices reflect where companies are listed, regulated, and traded, not only where they earn their revenue. A Western multinational selling into India behaves like a Western stock in a market downturn, which is why revenue exposure alone does not substitute for a dedicated emerging-markets allocation.
Why have emerging markets underperformed the US stock market?
Emerging markets underperformed US equities over the 2010–2019 period primarily because US technology companies experienced an exceptional decade of earnings growth, while emerging market earnings grew more slowly amid commodity weakness, a strong US dollar, and China’s property sector strain. Over the full life of the MSCI Emerging Markets Index since 2001, returns have broadly matched the S&P 500, but with higher volatility and through two distinct decades of leadership reversal.
What are the biggest risks of investing in emerging markets?
The main risks are political and sovereign risk, currency volatility, weaker governance standards, concentration in a small number of countries, and the possibility of sudden market closure, as happened to Russia in 2022 when Russian securities were reclassified to an effective zero value across global indexes. These risks are one reason emerging markets command higher expected returns, and also one reason holding them at market weight, rather than overweighting them, is usually the more prudent approach.
Should I increase my emerging markets allocation given current valuations?
Emerging market equities trade at a forward price-to-earnings ratio of around 13, compared with more than 21 for the US: one of the widest valuation gaps in two decades. However, valuations are a weak predictor of short-term returns and a moderate predictor of long-term ones. The more important discipline is holding emerging markets at the allocation the plan calls for, through periods of both apparent overvaluation and apparent undervaluation. Tactical allocation moves based on relative valuations tend to erode long-term returns rather than enhance them.
