Many investors will be taking the time this holiday season to evaluate their portfolio and its performance in 2025.
With only a day left of trading this year, the S&P/ASX 200 Index (ASX: XJO) has risen roughly 6.4% this year.
History tells us that's slightly below average.
So if your portfolio rose more than that this year, well done!
What you might not realise is that Australia's benchmark index has been outpaced over the last couple of years by Emerging Markets and Developing Economies (EMDE).
What are developing economies?
The World Economic Outlook divides the world into two major groups: advanced economies and emerging and developing economies.
Emerging Market and Developing Economies (EMDEs) are countries that are in the process of economic development and have lower income levels and less mature financial and institutional systems compared to advanced economies.
There are more than 150 countries that are classified in this group.
It's important to note this classification is not based on strict criteria, economic or otherwise.
However in general terms, these are economies that:
- Have lower per-capita income than advanced economies
- Are undergoing structural transformation (e.g., industrialisation, urbanisation)
- Have developing financial markets and institutions
- Often experience faster economic growth but higher volatility
How have they performed?
These markets are growing both economically, and in terms of global presence.
In fact, data shows emerging markets and developing economies (EMDEs) now account for 45% of global GDP.
This is up from 25% in 2000 according to the World Bank Group.
There are two ASX ETFs that have performed well over the past two years on the back of this growth.
Vanguard FTSE Emerging Markets Shares ETF (ASX: VGE)
This ASX ETF offers exposure to companies listed on emerging markets, allowing investors to participate in the long-term growth potential typical of these economies.
At the time of writing, it is made up of more than 6,000 holdings, with its largest geographical exposure being towards:
- China (32.6%)
- Taiwan (22.0%)
- India (19.8%)
Importantly, it has performed well over the last 3 years.
In 2025, the fund rose 14.54%, far outpacing the ASX 200.
Over the last 3 years, it has provided returns of approximately 13.5% per annum.
iShares International Equity ETFs – iShares MSCI Emerging Markets ETF (ASX: IEM)
This ASX ETF offers another option to gain exposure to emerging markets. It focuses on 800 large and mid-sized companies.
It has a similar geographic profile, with large exposure to:
- China (27.91%)
- Taiwan (20.26%)
- India (15.33%)
- Korea, South (13.01%)
In 2025, this ASX ETF has risen more than 22%.
Over the last three years it has provided per annum returns of 14.23%.
Foolish takeaway
There is absolutely ample opportunity in ASX stocks. However diversifying into international markets can also be a worthwhile strategy for investors.
It is important to note that emerging markets can also face significant volatility due to factors like political instability, currency fluctuations, weaker regulation, and lower liquidity compared with developed markets.
