KraneShares MSCI Emerging Markets ex China Index ETF (KEMX)

Origins: building an emerging-market fund without the largest market

KEMX emerged as a solution to a particular investor quandary. Many funds tracking emerging markets — the broad category of faster-developing nations outside the developed West — are heavily weighted toward China simply because China is enormous. Chinese companies dominate indices by market value, and anyone buying a plain emerging-market fund ends up with a China-heavy bet whether they intended one or not.

In the early 2010s, as emerging-market investing grew and concerns about China-specific risks rose, demand for an emerging-market fund excluding China grew. MSCI (the index company) created the Emerging Markets ex China Index, which holds the entire emerging-market opportunity set except China — India, Brazil, Mexico, South Korea, Taiwan, and smaller markets all included. KraneShares, an ETF provider specializing in thematic and geographic funds, built KEMX to track that index.

What the fund holds today

KEMX holds the 700-plus companies in the MSCI Emerging Markets ex China Index, weighted by market capitalization. India, Brazil, Taiwan, South Korea, and Mexico are the largest geographic buckets. Sectors vary by market: India has significant financial services and consumer exposure; Brazil leans resources and financials; Taiwan and South Korea are heavy in semiconductors and technology manufacturing.

Unlike a China-focused fund, KEMX offers diversification across many economies and currency zones. A regulatory crisis in one market does not dominate the fund’s returns the way it might if China represented 30% of holdings. This diversification is the fund’s core appeal: you get emerging-market growth without the concentration risk of China.

Performance across cycles

KEMX’s behaviour across market cycles reveals the fund’s real character. In years when emerging markets broadly outperform developed ones — typically when global growth is strong and commodities are rising — KEMX does well. In years when risk-off sentiment dominates and investors flee to safety, KEMX suffers alongside all emerging-market funds.

The exclusion of China matters most when China faces specific headwinds that do not affect other emerging markets equally. In 2021 and 2022, Chinese tech companies faced sharp regulatory crackdowns while Indian tech and financial services boomed. A broader emerging-market fund heavy in China would have lagged; KEMX captured the outperformance of India and other markets that did not face the same pressures.

Conversely, years when China’s growth accelerates relative to other emerging markets — as happened in some quarters post-2023 — KEMX underperforms by missing those gains. No fund structure is right in every cycle; the trade-off with KEMX is that you gain stability and diversification by surrendering upside if China’s largest companies outperform.

Currency and emerging-market risks

KEMX is denominated in U.S. dollars but holds companies across many currencies: Indian rupee, Brazilian real, Mexican peso, South Korean won, Taiwan dollar, and others. Currency fluctuations add a layer of volatility independent of the companies’ operating performance. A strong dollar can dampen returns even if the underlying firms perform well.

Emerging markets carry broader macro risks: capital controls, inflation, currency crises, and political instability all hit emerging-market funds harder than developed-market funds. Brazil’s periodic currency pressures, India’s inflation spikes, and Korea’s political tensions with North Korea all ripple through KEMX from time to time. These are not company-level risks; they are country and currency risks baked into the emerging-market bet.

Expenses and trading

KEMX is a passively managed index tracker with low costs — the fund simply buys and holds the index constituents and rebalances mechanically. The expense ratio is competitive for a diversified international fund. Trading volume is good during U.S. market hours, though not as liquid as mega-cap domestic ETFs.

The fund pays a modest dividend, reflecting the yields from the underlying stocks across these markets. Dividend yield varies by year depending on the earnings and payout policies of the index constituents.

Who KEMX is for and when to hold it

KEMX suits investors who want emerging-market growth exposure but prefer to avoid concentration in China — either for risk-management reasons or because they have a separate, specific view on China and do not want it embedded in a broad emerging-market allocation. It is also useful for investors who believe India, Brazil, Mexico, or other non-China emerging markets offer better risk-reward over the next cycle.

The fund is appropriate for long-term portfolios that want emerging-market diversification as a complement to domestic or developed-market holdings. It is less appropriate for conservative investors with short time horizons; emerging-market volatility is real, and a downturn in global risk appetite can hit KEMX hard.

KEMX’s value becomes clearest in a portfolio context. An investor holding both a developed-market index fund and KEMX achieves global diversification without the China concentration that comes with an all-in-one emerging-market fund. Over full cycles — booms and recessions combined — that diversification has historically paid a meaningful dividend in reduced volatility.