Beyond Brazil’s Turmoil, Emerging Market ETF Opportunity Persists

The investment case for emerging market equity ETFs came into sharp focus this week, as we were reminded that volatility in the region is often part of the ride. Thanks, Brazil, for that lesson.Key Takeaways:  Brazil’s sharp selloff is an idiosyncratic shock, not a structural EM breakdown. Technology and AI hardware are now a core growth engine in EM. Steep valuation discounts provide a buffer against U.S. concentration risk. This week, news from Brazil shook up emerging market investor resolve. Brazilian equities posted double-digit losses in a single day, and the country saw steep currency depreciation. This all followed an unexpected outcome to presidential elections. Brazil is a large emerging market, home to a wealth of natural resources, commodities, metals and mining, and oil, among other things. Across broad EM benchmarks, today Brazil represents about 5% of geographic exposure. It’s a country that had been among the year’s strongest performers, seeing gains of over 30% year-to-date, up until a few days ago. But Brazil, like many emerging economies, is also known for volatility. Consider that on an annualized basis, volatility in the iShares MSCi Brazil ETF (EWZ A-) hit 32% in the past 12 months — more than double that of the S&P 500 — and over 83% in the last month alone. Investing in emerging markets isn’t about enjoying a smooth ride.Why You Own an Emerging MarketBut it’s important to remember what drives performance, as well as why investors turn to an emerging markets allocation in the first place. What can we learn from Brazil? Brazilian equity markets entered late October near historic highs, propelled by heavy foreign inflows anticipating a business-friendly fiscal agenda from a new incoming administration. Instead, an upset at the October 25 presidential runoff completely upended investor positioning, and Brazilian markets raced to reprice risk. Stocks plunged, the local currency devalued, and sovereign bond yields surged. While local shocks like Brazil’s recent one generate both headline volatility and a lot of headline news, they also serve as a reminder that, for most investors, EM investing is broader than a single country opportunity.Tech, Not Commodities, Driving Emerging MarketsThis time around, unlike traditional EM cycles that are driven primarily by oil, industrial metals, and agricultural commodities, the emerging market opportunity set remains heavily leveraged to the infrastructure needs of artificial intelligence and digital transformation. A look at the broad benchmarks like the one underlying IEMG show just how much that’s the case today. Top country exposure sits with South Korea and Taiwan, countries that are home to semiconductor foundry and memory hubs — critical parts of the AI supply chain. These regions continue to benefit from the massive, global AI infrastructure spending and the impact on earnings these investments have going forward. See More: Inside the Ticker: IEMG vs VWOEmerging Market Valuation AppealThere’s also the persistent appeal of attractive valuations. Despite strong gains so far in 2026, EM equities are still trading at about a 45% discount to developed market equities on a price-to-book basis, and a 30%–35% forward P/E multiple discount vs. the S&P 500. That means emerging market stocks are offering a cozy margin of safety and room for relative multiple expansion. As investors continue to navigate concentration risk and stretched multiples across U.S. equities, emerging markets still offer a meaningful valuation cushion as well as solid earnings growth expectations. It’s not entirely surprising to see that Brazil’s brush off with the downside almost immediately triggered calls for “buying the dip” in the region and, more broadly, for remaining invested in emerging markets.Looking AheadBrazil’s political risk may have caused a lot of investor heartburn, and triggered concerns about local currency weakness relative to the dollar. However, EM investing will remain heavily centered on emerging markets’ critical role in the ongoing buildout of AI infrastructure and technology. To that end, the durability of AI Capex spending globally and AI implementation needs remain key factors in this opportunity set. Beyond that, strong earnings growth momentum, appetite for natural resources, demand for diversification from U.S.-centered concentration risk, and compelling valuations all continue to support the investment case for emerging markets going forward. For more news, information, and analysis, visit the Equity ETF Content Hub.