2 ASX ETFs Bell Potter backs for emerging markets exposure

Bell Potter believes the conditions for emerging markets (EM) are turning decisively positive.

In the firm’s December strategy note, investment strategist Rob Crookston argues that despite higher volatility and governance risks, “having an allocation to EM in portfolios is compelling given a constructive return outlook and diversification benefits.”

Structural tailwinds powering EM

Crookston’s case rests on several long-term forces. The first is emerging markets’ disproportionate contribution to global growth relative to their weight in global equities.

“EM is approximately 10% of the MSCI All Country World Index (ACWI); however, EM is ~40% of global GDP and contributes a bigger share to GDP growth,” he says.

He also points to a persistent GDP growth differential between EM and developed markets that has continued to widen since 1990, and is forecast to remain in place beyond 2030.

Younger populations, rising incomes, accelerating urbanisation and the rapid adoption of digital payments (particularly across Asia) all sit behind this trend.

“Asia is seeing the emergence of their middle class with data suggesting that Asia could account for two-thirds of the global middle class by 2030 compared to half in 2020,” he says.

Valuations and earnings support

Valuation is another core pillar of Bell Potter’s thesis. According to Crookston, emerging market equities are trading at a steep discount to developed markets, currently around 32% below DM multiples and sitting within one standard deviation of their long-term average.

Emerging market equities are modestly valued, he says, adding that such discounts have historically been followed by periods of EM outperformance. At the same time, earnings expectations also favour EM, particularly as Chinese technology leaders receive upgrades tied to global AI-driven capex demand.

A potential currency tailwind

Crookston also sees FX dynamics as a supportive near-term catalyst.

“A depreciating US$ should be a tailwind for EM equities over the next 12 months,” he notes, citing Fed rate cuts, moderating US economic momentum and improving global risk appetite.

Bell Potter’s preferred implementation

To express the theme, Crookston recommends a core/satellite allocation built around two ETFs.

Core: JPMorgan EM Research Enhanced Index Equity Active ETF (ASX: JEME)

He prefers JEME for its blended index-aware approach, describing its mandate as “seeking positive alpha at a low tracking error, whilst neutralising style skews to produce index-like risk.” 

He highlights the fund’s access to JPMorgan’s 50-analyst EM research platform as a key advantage.

Satellite: Fidelity Asia Active ETF (ASX: FASI)

To overweight high-growth Asian markets, Crookston favours FASI, “a concentrated portfolio (typically 20–30 stocks) with high active share, seeking to generate alpha through stock selection.” 

The strategy follows a Growth at a Reasonable Price (GARP) philosophy and is backed by deep analyst coverage across the region.