The Futures of Emerging Markets in Asia

Emerging Markets (EM) Asia is projected¹ to grow at a higher near-term pace than other emerging economies. With an average projected growth rate of 6.5% over the next five years,¹ India is expected to lead the expansion of EM in Asia as one of the world’s fastest-growing major markets.² The Chinese economy, which recently lifted its zero-COVID-19 policies, is expected to grow by 4.7% over the same period.² Taiwan and Korea, with a significant portion of their economic revenues linked to the U.S. and China, are expected to grow at about 2%,³ mainly due to weakening export prospects.

However, risks to EM Asia exposure include adverse health outcomes in China, which could deter the recovery, U.S. quantitative tightening and the Russia-Ukraine conflict, which continues to impact energy prices. As shown below, the MSCI Emerging Markets Asia Index has more than 40% of its revenues tied to Chinese companies. And sectors such as real estate, consumer discretionary and communication services have more than 70% of their revenues linked to China. Conversely, the information technology sector, which accounted for almost a quarter of the MSCI EM Asia Index,⁴ has about 40% of its revenues linked to U.S. firms (mainly in IT services and semiconductors).

Listed futures linked to the MSCI EM Asia Index and single-country indexes

Investors looking to gain exposure to the MSCI EM Asia Index without constructing a tracking basket can look to EM Asia futures, which may be an effective path for asset allocation, tactical adjustments and risk-management purposes. Since 2019, there have been more than USD 40bn of notional open-interest trades on futures linked to EM Asia and its associated countries (opens in a new tab) on average (as shown below). Investors managing China risks separately may consider listed futures linked to the MSCI EM Asia ex China and MSCI China A50 Indexes.