Brendan Ahern, Chief Investment Officer for KraneShares, joined Keith Black, Managing Director at RIA Channel, to discuss the growth and value dichotomy in emerging markets stocks.
The S&P 500 has been growth-oriented, with increasing weight on the technology sector. Ten years ago, the MSCI Emerging Markets index was decidedly value-oriented with half of its weight in energy and finance. While some investors are concerned about the underperformance of emerging markets stocks relative to the S&P 500, much of this outperformance can be traced to the value nature of emerging markets relative to the growth nature of the US market.
Drilling down, Ahern notes that growth stocks in both China and broad emerging markets have outperformed the US market, with the MSCI emerging markets technology index beating the S&P 500 over the last decade. Investors with broad emerging markets exposure may not have noticed the performance of this sector, as it started with just an 11% weight in the MSCI EM index.
The Chinese economy is experiencing a slowdown in the property sector and exports to developed markets that are facing recession and rising rates. China has been easing monetary policy with the goal of growing the spending of domestic consumers. Valuation multiples of Chinese stocks are significantly below those in the US market.
Investors can use KraneShares ETFs to take focused exposure to emerging markets ex-China and Chinese growth stocks. The KraneShares CSI China ETF, (KWEB), offers exposure to Chinese Internet stocks and companies that benefit from increasing domestic consumption. The KraneShares MSCI Emerging Markets ex-China ETF, (KEMX), offers broad exposure to emerging markets stocks, with half of the weight on technology and consumer-focused stocks. Combining holdings in KEMX with one or more of KraneShares 11 China-focused funds allows investors to customize the size of their exposure to China in their emerging markets allocation.
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