Diversification through Emerging Markets

27 August 2026

As UK investors, it is all too easy to focus solely on the securities and opportunities within our domestic market. Without doubt, the UK offers strong investment opportunities driven by an entrepreneurial spirit. However, we must also acknowledge the significant headwinds facing domestic businesses and the broader economy: persistent political uncertainty, a heavy tax burden, the lingering aftermath of Brexit, and low capital investment contributing to stagnant productivity.

These domestic challenges highlight the importance of our core investment philosophy: diversification.

When building a resilient portfolio, diversification can be achieved across three core dimensions:

1. Asset Allocation: Spreading capital across four key building blocks—Equities, Fixed Interest, Alternatives, and Cash.

2. Investment Style: Balancing Capital Growth against Income, which may have a tilt toward Value or Growth orientation depending on risk appetite and return expectations.

3. Geographic Allocation: Expanding beyond domestic borders to capture global opportunities. One of the most dynamic equity pools within this space is Emerging Markets (EM).

What Defines an Emerging Market?

"Emerging markets are countries with active and liquid equity markets that are transitioning towards a more advanced, industrialised, and technologically sophisticated economy, with faster growth and increasingly robust institutions." — Robeco, Investment Engineers

Global equity markets are generally split into three tiers:

• Developed Markets: Established economies such as the UK, US, Japan, and Western Europe.

• Emerging Markets: High-growth economies undergoing rapid industrialization and structural development.

• Frontier Markets: Smaller, less liquid economies ranked below Emerging Markets. These are deemed high-risk and volatile due to lower scores across core operational criteria.

When international index providers classify a market, they evaluate specific operational components:

• Trading infrastructure, clearing efficiency and global custody

• Regulations and investor protection

• Foreign exchange (FX) convertibility and capital flexibility

• Market capitalisation, liquidity, and overall accessibility

Why Include Emerging Markets in a Portfolio?

Emerging Markets (EM) are traditionally viewed as the higher-risk, higher-volatility component of a portfolio. This volatility stems from the nature of developing nations, where regulatory and economic shifts often occur in rapid cycles. However, the primary catalyst for including EM is capital growth—capturing the rapid economic expansion of countries building modern economies.

Despite their higher-risk characteristics, Emerging Markets can still form part of a diversified portfolio where this is consistent with an investor's objectives and risk tolerance. The investment universe includes some of the world's largest companies across a broad range of developing nations: 

• Latin America (Brazil, Chile, Colombia, Mexico, Peru): Highly commodity-rich regions. Chile and Peru dominate global copper and lithium supply; Brazil and Colombia excel in agricultural exports; and Mexico and Colombia hold vast energy reserves.

• EMEA (Czech Republic, Greece, Hungary, Poland, Turkey): Industrial powerhouses specialising in European supply chains, EV battery manufacturing, logistics, and agriculture.

• Middle East & Africa (Egypt, Qatar, South Africa, UAE): Rich in natural resources, precious metals, and energy infrastructure.

• Emerging Asia (China, India, Taiwan, South Korea, Thailand, Indonesia): The core engine of the EM index. Taiwan and South Korea host semiconductor and AI hardware giants like TSMC, Samsung, and SK Hynix.

China: World Leader or Emerging Market?

Investors are often surprised to learn that China—the world’s second-largest economy and a leader in artificial intelligence and industrial technology—is still classified as an Emerging Market.

Why is China not considered "Developed"?

• Capital Controls: Strict limits on foreign ownership (typically capped at 30%) and administrative friction surrounding foreign exchange and capital return.

• Corporate Governance: Issues around corporate reporting and transparency, as highlighted by the high-profile collapse of real estate giant Evergrande Group.

• Regulatory Interventions: Unpredictable policy shifts across private technology and industrial sectors.

Despite these frictions, China has delivered investment returns during key growth phases. Successful active managers navigate China by flexing their exposure rather than sitting statically. As the saying goes: "It is not about timing the market, but time in the market."

The Rotation: India's Demographic Dividend

During the 2020–2024 period, global capital rotated heavily into India. Under structural economic and regulatory reforms, India emerged as a primary growth engine. It has advanced technology infrastructure, world-class banking institutions and the largest addressable domestic consumer market in the world.

India's long-term thesis is driven by rapid middle-class expansion:

• Middle-class consumption is projected to increase from 31% of total domestic spending to 93% by 2036 (Forbes).

• Roughly 10% of India's 1.4+ billion population is entering the formal banking and consumer ecosystem for the first time, driving massive demand for luxury goods, financial services, and travel.

More recently, market cycles have turned again. As Indian valuations stretched and capital tax frictions mounted, active managers rotated back into China to capture attractive valuations, boosted government stimulus, and China's global leading position in the global technology and AI

Final Thoughts

Emerging Markets underscore the fundamental value of global diversification. The rapid rotation between regions highlights why an adaptable, well-structured portfolio is critical.

There is no "one-size-fits-all" approach to asset allocation. For an investor seeking long-term growth with a higher risk tolerance, a larger allocation to Emerging Markets may be entirely appropriate. For others, a more modest exposure may provide diversification alongside core developed-market holdings, subject to the investor's objectives and risk tolerance. 

Jamie Norris, CWMQ

Investment Manager

If you would like to discuss this topic more, contact Jamie at [email protected] or call 020 3100 8180

Important information

This article is intended to be an education piece by Walker Crips Investment Management and should not be taken as advice. It is not investment research and should not be construed as an offer or solicitation to buy, sell or trade in any of the investments, sectors or asset classes mentioned. The value of any investment and the income arising from it is not guaranteed and can fall as well as rise, so that you may not get back the amount you originally invested. Past performance is not a reliable indicator of future results. Movements in exchange rates can have an adverse effect on the value, price or income of any non-sterling denominated investment. Nothing in this document constitutes advice to undertake a transaction, and if you require professional advice you should contact your financial adviser or your usual contact at Walker Crips. Walker Crips Investment Management Limited is authorised and regulated by the Financial Conduct Authority (FRN:226344) and is a member of the London Stock Exchange. Registered office: 128 Queen Victoria Street, London, EC4V 4BJ. Registered in England and Wales number 4774117.