ETF Edge - Re-emerging markets? 9/25/25

Episode Date: September 29, 2025

While many emerging markets have been outperforming the U-S this year, many investors might still be missing the biggest opportunities yet-to-come.     Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

The ETF Edge podcast is sponsored by InvescoQQQ, proud provider of access to innovation for the last 25 years. Investco Distributors, Inc. Welcome to ETF Edge, the podcast. If you're looking to learn the latest insights on all things, exchange traded funds, you are in the right place. Every week, we bring you compelling interviews, thoughtful market analysis, and we break down what it means for investors. I'm Contessa Brewer, in for Dominic Chu. Emerging markets outperforming the U.S. this year. are investors still missing the real potential.

Here's my conversation with Kevin Carter, founder and CIO of EMQ, along with Dave Nodig, president and director of research at ETF.com. Kevin, let me kick it off with you. China fell out of favor. You say it's back. Why? Sure. Well, I think that the first thing is China got really, really cheap.

I mean, there was so much negativity around China. People declared it uninvestable. So in terms of bearishness, it's about as bearish you can get. So Chinese Internet stocks were very cheap. And the world finally woke up to the fact that they also have artificial intelligence. We've seen what AI has done to boost our stocks. So I think China is very much back, and I think it has a long way to go. The Chinese Internet companies are frankly still cheap.

There have been a lot of concerns about the health of the Chinese consumer, about the political challenges ahead for China. Dave, what's your thought on the potential resurgence? Well, I think we have to remember that, as Kevin said, we had a big run into China, and what we've had is a bit of a pullback. I think most of the bearishness on China has been around trade policy, and I think for very good reason. So I think it's useful to think about where are you isolated from those individual effects?

Where can you invest in China and say not get hit with a tariff issue, not get caught up in a currency war, not get caught up in a goods and services shipping war? That's why approaches like looking at services, looking at internet, I think, has been a way for investors to get back in. As part of a global trend we've seen, where honestly, home bias is about as bad as it's ever been in the United States. The average investor has far too much of their money sitting in the United States, getting out of the U.S. somehow, whether it's a very specific fund or a very specific country, or just broad international exposure, is something I'm hearing more and more investors and advisors talk about. And is it the technology then, Kevin, that's fueling that? I mean, if you're looking at China specifically and internet stocks, what do you think is the fuel when you press down the accelerator? Well, look, the story in emerging markets, what's happening in the tech center or sector, it's the same thing we've seen here.

Everybody is getting their first computer in emerging markets. It's a smartphone. They're getting the internet for the first time. And they're doing all the things that we do. So the emerging market internet story is definitely the best part of emerging markets, which has long been troubled by state-owned enterprises, banks, oil companies, and a lot of corruption. This is the tip of the spear of technology growth on the planet. It's happening in Brazil.

It's happening in India. It's happening in China. It's happening in Southeast Asia. It's happening Kazakhstan. The entire world is getting online largely for the first time. And Dave, if we were to put, I don't know, U.S. tech up against Chinese tech, taking into account current valuations, which would hold up? Well, certainly it's cheaper, right?

That's the thing. I think to Kevin's point would be that international stocks writ large are cheaper than U.S. stocks. Chinese tech stocks are generally much less expensive to the extent you can buy them than the U.S. as well. So China has embedded in it a kind of value story. I think it's reasonable to have concerns about how much you can trust the economic numbers from China, how much you can trust the Chinese consumer story.

Those are legitimate, but overall, it's difficult to look at China or frankly any other international market and say it is expensive relative to the U.S. So I think that foundational value play is there. And then you can ask yourself the question about who you believe are going to be the winners long term. I think it's hard to bet against China in the long term. When we look at India now moving politically closer to China, Kevin, India next on the list. you note that the flows into that country have not been that meaningful. So is this just a later time horizon? Is there a real opportunity for investors if not everybody is piling in? Sure. Well, I think the way that investors should think about India. Obviously, it's a democracy

and that's favorable to most people to communism. But India is like China was 15 or 20 years ago. You now have the largest population. You have the best demographics. You have the fastest growth in the world and that's driving consumption. And that's the same thing we saw in China over the last 20 years. But India is happening at a time where the smartphone, the pocket-sized supercomputer, doesn't just exist. You can get a brand new smartphone in India for as little as $12. So the Indian Internet stocks are incredibly compelling. Valuations are reasonable. But the growth rate in the near-term years is going to be massive. But this is a 20-year growth story for India. You were telling me that the consumers there are just leapfrogging over the tech steps that we experience in the United States, or maybe China experienced over the last 20 years.

Sure, this is absolutely part of the emerging market internet store. You have six and a half billion people. They are getting their first computer today. We've had these things for years, but I've had a computer for 30 years, right? I had a computer for 20 years before I had a smartphone. Well, guess what? Most of the world is leapfrogging to the smartphone. They've never had a bank account.

They've never had a credit card. They're going right to digital payments. And it's a leapfrogging that's driving what is certainly the fastest growing sector in emerging markets by far. and maybe the fastest growing sector in the world, and it's still very, very early. And Dave, let's talk about Argentina because here the country is getting a bailout from the U.S., but investors are bailing from the one ETF that represents that country. Yeah, we've been, the industry in general has been really, it's been very difficult for the industry to sell investors on anything international, which has been a real problem this year

because internationals outperform the U.S. almost across the board. Argentina is a very special case. At this point, any money going into Argentina would be what I would consider special situations money, right? Because you don't really know how this is going to pan out with the upcoming election, with the sort of multivariate bailout. It's not quite really a normal bailout like we might expect. And we've got a fairly aggressive military action by the United States happening in South America,

right? We have lots going on here. I think it's reasonable for investors to be a little cost. about Argentina. I think that is a speculative play if you're buying in and what we've seen is people allocating out. Most of those individual single country ETS tend to get used by people making core bets on like I believe in Brazil but not Argentina, I believe in Korea but not, you know, Malaysia. I think it's very difficult to make the case everybody should have been piling into Argentina here over the last six to 12 months.

That scenario where political instability or the regulatory changes in any country, that has to be a huge focus for investors in EM. Kevin, talk to me a little bit about Argentina, but also the sort of mindset that you have to have when you're gauging what's right for your investments. Well, look, the biggest problem in emerging markets are the actual indexes, whether it's the MSCI emerging markets index to cover all EM, whether it's the individual country, ETFs like Argentina.

And the problem is the index is full of government-owned banks and oil companies and state-owned enterprises which aren't trying to grow their earnings. And if you're an investor, the way you make money is the companies you own grow their earnings, and that's it. And there's a systematic flaw in the traditional indexes. The other problem is the Internet companies, which are the best governed companies, the fastest growing. Most of them are not even in the index. The best company in Latin America,

the largest is Mercado Libre, which started in Buenos Aires in Argentina, since has relocated to Uruguay. That's where the mailbox is, but that's not where the revenue is. The revenue is Brazil and Mexico. And so it's that corporate governance problem in emerging markets, which is another reason why investors should really focus on the Internet sector. When you're looking at the operators in these big emerging markets, look at Ali Baba right here for China. But we saw Jack Ma removed, Jack Ma's back. Do you have more confidence where it's a massive company that is paying close attention and navigating ahead of time the potential pitfalls politically or with regulation? Absolutely. Almost every company we own

has the same foundation store. The smartest kid from every country goes to Harvard or Stanford or some of their great school. And then they get their MBAs at a similar school. And then they go back to their own country and start an internet business, but they get funded by U.S. institutional investors. Or you were talking to me about Flipcard in India, right? Or Flipkart back now, flip card, which hasn't gone public yet, but I think will in the, next year for sure. It's owned by Walmart.

Walmart took control of the company several years ago. So again, corporate governance is a problem in emerging markets, but beyond just the real growth you get in the internet stocks, you also get a much higher level of. of corporate governance versus things like the Adani group or the state-owned cold giants, etc. Dave, I want to switch gears a little bit while we have you and note that you have two big developments in two very different parts of the ETF space that could lead to a flood of new products this year. Share classes and crypto. Talk me through it. Yeah. Well, we'll start with share classes because that happened today. We've got 70-odd mutual fund providers who have been asking the SEC to allow them to

make ETF share classes of their traditional old school mutual funds. Dimensional got the first approval today. I suspect we'll get the other 70 very quickly thereafter. What does that actually mean for investors? It means there are going to be a whole lot of new tickers you've got to worry about because all these mutual funds are now going to launch ETF versions. You can think of them that way. There may be some benefits if you're an existing mutual fund shareholder,

some tax stuff, but for the most part, it's just going to mean a lot more products for investors to wade through. Same thing happening in crypto for a different reason. The SEC's approved generic listing standards for spot crypto like Bitcoin or ETH or something like that. And now we're going to get a flood of those. So I would suspect within the next 60 to 90 days, we'll have a dozen or so new crypto-oriented products tracking things like Solana or XRP or the coins that people don't know about that are below Bitcoin and Ethereum to the ones everybody knows. So two big regulatory changes, both of them opening the floodgates on new products for investors.

That does it for ETF Edge, the podcast. Thank you for listening. You can join us again next week or head to etfedge.cnbc.com. How does InvescoQQQ rethink possibility? By rethinking access to innovation and the NASDAQ 100. Let's rethink possibility. Investorbiters, Inc.