Time for Emerging Markets ETFs?

Emerging-market stocks recorded the ninth consecutive month of gains — the longest winning streak since 2004 — thanks to accelerating inflows and strong demand for Asian technology shares, per a Bloomberg article, as quoted on Yahoo Finance.

A weak dollar environment, Fed rate cuts and the Chinese tech share rally are some of the factors that have boosted emerging market stocks.  iShares MSCI Emerging Markets ETF (EEM) has gained 29.5% so far this year and added about 8.1% past month. This compares with the S&P 500’s approximately 14.5% year-to-date gains and a 4% monthly uptick.

Why Emerging Markets are good bets

Undervaluation

First, EMs have suffered a lot in the past few years. The segment is undervalued despite the recent rally. EEM has a past 36-month P/E of 16.33X, while Invesco S&P 500 Equal Weight ETF (RSP) has a P/E of 19.25X, and SPDR S&P 500 ETF (SPY) has a P/E of 24.43X.

Start of Fed rate hikes to weaken Dollar?

Emerging markets tend to perform well when the U.S. dollar weakens, global interest rates are stable, and the global economy is growing. With the Fed enacting its first rate cut of 2025 in September and more policy easing in the cards, EM investing should be gainful in 2025 and ahead. Invesco DB US Dollar Index Bullish Fund (UUP) is off about 7.2% this year and has been almost flat over the past month.

Emerging Markets growth to pick up on policy easing?

Developing nations from India to China to Brazil are reporting declines in consumer-price growth. China, in fact, has been witnessing deflation this year (per tradingeconomics). This has lessened the need for rate hikes in some of the biggest EM economies. India has already enacted hefty rate cuts this year in April and June. 

Chinese AI boom

Asian technology stocks are gathering steam on optimism surrounding companies tied to AI innovation. According to Ipek Ozkardeskaya, senior analyst at Swissquote, global investors are still relatively less invested in Chinese equities, suggesting further room for the rally, per the Bloomberg article, as quoted on Yahoo Finance.

Note that China has invested heavily in AI, and Chinese tech stocks are still cheaper than their U.S. peers. China’s recent “AI Plus” plan is another milestone in the country’s information technology industry. Corporate strength also calls for tech investments in China.  

Invesco China Technology ETF (CQQQ) has a past 36-month P/E of 25.32X, while iShares U.S. Technology ETF (IYW) has a P/E of 42.36X. CQQQ is up more than 50% this year (as of Sept. 29, 2025) while IYW has advanced about 21.9%

ETFs in focus

Below, we highlight a few emerging market-based exchange-traded funds (ETFs). These ETFs have topped the S&P 500 this year, still have low P/E and have solid market value. Note that most broader emerging markets ETFs are China-heavy.

iShares Emerging Markets Dividend ETF (DVYE)

P/E (36 Months): 8.30X.

Performance YTD: 20%.

Market Value: $939.1 million.

Yields: 9.58%.

Cambria Emerging Shareholder Yield ETF (EYLD)

P/E (36 Months): 8.97X.

Performance YTD: 21.5%.

Market Value: $569.0 million.

Yields: 3.81%.

Schwab Fundamental Emerging Markets Equity ETF (FNDE)

P/E (36 Months): 9.99X.

Performance YTD: 25.1%.

Market Value: $7770.9 million.

Yields: 3.82%.

Invesco RAFI Emerging Markets ETF (PXH)

P/E (36 Months): 10.56X.

Performance YTD: 27.3%.

Market Value: $1.62 billion.

Yields: 3.40%.

iShares Core MSCI Emerging Markets ETF (IEMG)

P/E (36 Months): 16.35X.

Performance YTD: 27.2%.

Market Value: $108.9 billion.

Yields: 2.85%.

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