Putnam Emerging Markets ex-China ETF (PEMX)
The Putnam Emerging Markets ex-China ETF (ticker PEMX) is a fund of shares in companies across the developing world, explicitly omitting China. It holds companies in India, Brazil, Mexico, Vietnam, Thailand, the Philippines, Indonesia, and dozens of other countries where rapid economic growth collides with lower valuations and political risk. The logic is straightforward: emerging economies are where the fastest growth happens on Earth, so the biggest future stock market winners are likely to come from there. But China’s scale and government control over its markets create complications, so PEMX wagers that excluding China and diversifying elsewhere offers a cleaner bet on emerging-market growth.
The core premise of PEMX rests on a demographic and economic truth: emerging markets are younger, growing faster, and contain more than eighty percent of the world’s population. A business in India or Vietnam or Brazil can expand into markets with billions of potential new customers gaining purchasing power every decade. By contrast, developed markets like the United States and Europe have aging populations, slower growth, and saturated consumer bases. For long-term equity returns, the logic goes, emerging markets are where the leverage lies. The catch is that this is also widely known and hotly contested, which is why emerging-market stocks are volatile, subject to sudden capital flight, and often held only by investors with strong risk tolerance.
The decision to exclude China reflects a pragmatic divergence from traditional emerging-market indices. China is the largest emerging economy by GDP and the most important by stock-market capitalization, so a standard emerging-market fund would be heavily weighted toward Chinese stocks. But China presents distinct challenges. Its government maintains extensive control over markets through state-owned enterprises, regulatory shifts can be abrupt, and Western investors face restrictions on what they can own and when capital can leave. The trade tensions between the United States and China, coupled with disputes over technology, intellectual property, and national security, have created an additional layer of uncertainty. For investors uncomfortable with these specific risks, or who suspect that the geopolitical tension will constrain Chinese stock returns relative to other emerging markets, a China-excluded fund makes intuitive sense.
By leaving China out and spreading across Latin America, Southeast Asia, India, and Africa, PEMX achieves a different diversification profile. India becomes the largest single-country exposure — a nation with over a billion people, growing middle-class consumption, and young demographics that favor long-term economic expansion. Brazil and Mexico bring large, mature emerging economies with natural resources and established financial sectors. Southeast Asian countries like Vietnam, Thailand, and Indonesia offer exposure to manufacturing and trade hubs growing at rates that still exceed developed-world norms. Some of PEMX’s holdings are in truly frontier markets — smaller, less liquid, and higher-risk economies — while others are in middle-income countries that have achieved relative stability and decent market infrastructure.
The composition of emerging-market equities is quite different from developed markets. Financials, energy, and materials (mining, commodities) bulk up emerging portfolios because many of these countries export natural resources and run banking sectors that serve younger, credit-hungry populations. Technology is present but distributed differently: India hosts major software and IT-services firms, but no equivalents to Apple or Nvidia. Consumer stocks exist but often lack the moats and brand power of Western consumer companies. Utilities and real estate play outsized roles in some countries’ indices because infrastructure development is still ongoing.
Currency exposure is inescapable in PEMX. Most holdings are in local currencies — Brazilian reals, Indian rupees, Philippine pesos, Thai baht. When the U.S. dollar weakens, those currencies tend to strengthen against it, boosting the dollar value of the fund’s holdings even if the underlying stock prices are flat. Conversely, when the dollar surges (typically during periods of risk-off sentiment or when U.S. interest rates are rising relative to other countries), the currency headwind can wipe out the equity gains. This currency volatility makes PEMX more volatile than a similarly diversified developed-market fund would be.
Emerging markets themselves are cyclical in aggregate. In boom periods when commodity prices are high, capital is flowing into developing economies, and growth is accelerating, PEMX and other emerging-market funds can dramatically outperform. The 2000s commodity super-cycle saw emerging-market stocks soar. But the relationship is not one-directional. Emerging markets also tighten during global recessions, when capital flees to safety (developed-world bonds and equities), and when commodity prices collapse (which hurts many emerging economies that depend on exports of oil, metals, and agricultural products). The 2008 financial crisis, the 2020 pandemic shock, and the 2022 energy crisis all saw emerging-market stocks and currencies under pressure. What makes them attractive — high growth and commodity sensitivity — also makes them volatile and vulnerable to external shocks.
The fund itself is relatively new, launched in 2021, and operates like a standard ETF: it holds a basket of stocks from its chosen emerging-markets-ex-China index, trades on the NASDAQ during market hours, and can be bought or sold through any brokerage. The expense ratio is typically low, around 0.50 to 0.65 percent per year, reflecting the straightforward indexing approach. Liquidity is generally good, though some of the individual stocks held in the fund may be less liquid than a typical U.S. stock, which can matter if large positions need to be entered or exited.
An investor considering PEMX faces a central tension: emerging markets offer alluring long-term growth prospects, but short-term volatility and capital-flow risks make them suitable only for those with a multi-year horizon and fortitude to hold through declines. The ex-China filter addresses a specific concern about geopolitical friction and government control, but it is not a guarantee against other emerging-market risks — currency crises, political instability, commodity shocks, and the usual hazards of frontier capitalism can all hit non-China emerging markets too. A reader researching PEMX should watch trends in global capital flows (is money flowing into or out of emerging markets?), the trajectory of commodity prices (which often drive emerging-economy growth and currency strength), and geopolitical developments in the fund’s key regions — India’s relationship with Pakistan and China, for instance, or any disruptions in Southeast Asia. The fund offers real diversification and genuine growth potential for those with the patience and risk appetite to own it.