BEYOND BRICS

A World Beyond BRICS: Rethinking Emerging Market Exposure

As global investors search for yield and diversification amid shifting macroeconomic tides, emerging markets beyond the BRICS[i], Taiwan, and South Korea (“EM ex-core”), such as Southeast Asia, Central Asia, Latin America, and Africa, are gaining renewed attention. These EM ex-core regions present a compelling, though often overlooked opportunity set driven by demographic tailwinds, untapped growth potential, and technological “leapfrogging.[ii]” Therefore, disciplined allocation to experienced managers in these markets can potentially offer differentiated, additive return streams and exposure to secular growth uncorrelated with major world economies.

Under-coverage of EM ex-core regions could provide opportunities for significant idiosyncratic alpha

EM ex-core remains significantly underrepresented among inflows of global capital, in large part due to limited analyst coverage. The smaller EM countries in Southeast Asia, Eastern Europe, and the Middle East often fall outside the scope of major research firms, resulting in inefficient markets without fully priced in fundamentals.  Relatively more obscure frontier markets (e.g., Nigeria, Vietnam, and Kazakhstan) face even steeper challenges, with many listed companies receiving little to no institutional analysis.  The scarcity of reliable data and limited market transparency add further complexity, deterring traditional investors and reinforcing capital concentration in mainstream emerging markets as a “safer” choice.  However, it’s exactly this lack of coverage that presents a meaningful opportunity.

For institutions with long-term capital and a willingness to go beyond conventional benchmarks, these overlooked markets offer access to underappreciated growth and diversification.  By conducting propriety research and partnering with local experts, investors can uncover companies and sectors poised for structural expansion, often at notably more attractive valuations than their more conventional counterparts in a world increasing driven by consensus trades and index crowding.

EM ex-core countries exhibit low correlation with major economies

Primarily, these regions offer potentially valuable diversification, relative to both developed markets and the broader emerging-markets universe.  The larger EMs like India, Korea, and Taiwan have become increasingly synchronized with global cycles, with India exhibiting notably high correlation with the S&P 500, while Korea and Taiwan are tightly linked to the broader global tech cycle.  On the other hand, EM ex-core regions show far less co-movement.  The MSCI EM Index, for example, has historically maintained a rolling one-year correlation of 0.5 to 0.8 with the MSCI World Index, while EM ex-core countries frequently exhibit correlations below 0.5, reflecting their limited integration with global capital and unique economic structures.

EM ex-core economies are more influenced by local consumption trends, domestic politics, or commodity-specific dynamics, rather than global monetary policy or multinational earnings cycles.  Structural factors such as capital controls, shallow investor bases, and sector concentration—such as textiles in Vietnam or agriculture in Kenya—further contribute to their differentiated behavior.  These countries also vary widely in terms of demographics, political systems, and sources of foreign exchange, including remittances and tourism.  Consequently, they often respond to global shocks in dissimilar ways; for example, oil price movements or Federal Reserve policy shifts may have divergent effects across these markets.  Such structural diversity enhances their role as diversifiers in institutional portfolios seeking exposure beyond conventional benchmarks and the more usual suspects.

EM ex-core countries are better insulated from major geopolitical issues

Unlike the prevailing market environment, which is centered on companies reliant on broader global interconnectivity, companies in EM ex-core regions, especially in sectors like consumer goods, telecom, utilities, and banking, are built to serve local markets, with over 80% of revenue often derived from domestic users; this focus limits their exposure to broader demand cycles and reduces their vulnerability to external shocks or international disruptions such as tariffs, trade wars, and broader de-globalization trends.

Additionally, in contrast to economies like Taiwan, Korea and China, which are deeply embedded in global manufacturing and the tech supply chain, EM ex-core countries typically export primary goods (e.g., agriculture, mining) and import capital goods or finished products. This trade structure makes them less sensitive to the global logistics bottlenecks and reshoring pressures affecting export-driven economies.

Geopolitically, EM ex-core nations also tend to sit comfortably outside major flashpoints, such as the US-China or EU-Russia rivalries.  As a result, they are less exposed to sanctions, cross-border restrictions, or diplomatic escalations.  While these markets in many cases certainly carry their own political and regulatory risks, the absence of direct involvement in global conflicts often creates a more stable or predictable environment for domestic-facing businesses.  For institutional investors, this combination of local revenue generation and geopolitical detachment enhances portfolio resilience in an increasingly fragmented global landscape.

Opportunities arise from global supply chain diversification

Some EM ex-core countries are emerging as strategic winners from global supply chain diversification, particularly through the 'China+1' strategy, where multinationals seek to reduce their reliance on China by diversifying manufacturing operations into other regions. This shift is driven by rising labor costs in China, intensifying US-China tensions, and the fundamental operational risks of geographic concentration. Vietnam stands out as a key beneficiary, attracting foreign direct investment from tech and apparel giants such as Samsung, Foxconn, Nike, and Apple, which has begun shifting iPhone production to the country.

This trend extends to countries like Mexico, Indonesia, Thailand, and Bangladesh, which are improving infrastructure, developing industrial parks, and reforming regulatory frameworks to attract Foreign Direct Investment (FDI), capital directly invested into local businesses and assets by international companies.  Beyond capital, these investments also facilitate the transfer of technology, create jobs, and support local integration into global supply chains and demand. Vietnam’s surge in electronics exports, for instance, is closely tied to Samsung’s expansion and build-out of a fuller supplier ecosystem.

The “first-factor effect” often follows: when an anchor multinational sets up operations, ancillary businesses, service providers, and logistics firms quickly follow, further boosting employment opportunities and wages. Economies diversify from traditional sectors like agriculture into higher-value industries, enhancing export complexity and negotiating power in trade agreements or regional blocs.  As these countries grow more central to global manufacturing, they gain strategic importance for both East and West, leading to increased diplomatic engagement, infrastructure financing, and bilateral partnership (particularly in the case of the US and EU seeking alternatives to China).

Under-appreciated, yet strong growth profiles

A key differentiator is the demographic advantage: most EM ex-core countries have median ages between 20 and 30 years. This young and growing population reflects a long-term demand for housing, education, healthcare, and consumer services.

Urbanization is also accelerating across many of these markets, necessitating significant investments in roads, housing, energy, and public services to support expanding city populations; this infrastructure buildout is not only a growth driver but also a productivity catalyst, reducing transit times, improving energy reliability, and enabling more efficient delivery of goods and services.  Importantly, growth in these economies is typically not export-dependent.  Domestic consumption fueled by a rising middle class largely drives resilient demand in sectors such as food, telecom, education, and health, offering another measure of insulation from global trade slowdowns.

Case study: Digitalization

Digitalization in EM ex-core regions is accelerating rapidly, often leapfrogging traditional development stages thanks to mobile-first adoption, relatively youthful demographics, and the absence of legacy infrastructure.  Many of these economies skipped desktops and landlines altogether; mobile penetration often exceeds 80%, with cheap smartphones and affordable data plans enabling mass access to the internet, banking, education, and entertainment.

This model has fueled the rise of fintech, e-commerce, and digital services, which often scale faster than in developed markets.  In countries like Kenya and Nigeria, robust mobile ecosystems are transforming access to financial services, while in Southeast Asia, mobile commerce continues to grow at double-digit rates.  Meanwhile, the Philippines and Egypt leverage remittances sent home by workers abroad and growing income from services like call centers and tech support to support digital expansion and household consumption domestically.

Fintech is helping to address the needs of large unbanked populations through mobile wallets, peer-to-peer lending, microinsurance, and buy-now/pay-later solutions.  Government initiatives to promote digital payments and increase tax transparency have further supported this shift, while the COVID-19 pandemic significantly accelerated the move away from cash, creating lasting behavioral change.  As a result, countries like Nigeria, Vietnam, Egypt, the Philippines, and Pakistan have emerged as high-growth fintech hubs, with digital financial services expanding access to credit, savings, and insurance, often reaching users otherwise unserved by traditional banks.

• Kenya: M-Pesa[iv] pioneered mobile money in the 2000s.
• The Philippines: widespread use of GCash and PayMaya[v].
• Bangladesh: bKash[vi] has >60 million users.

Rising smartphone penetration is transforming consumer behavior, especially in urban environments; the growth is fueled by the rise of logistics platforms, digital wallets, and social commerce, enabling seamless handheld transactions and last-mile delivery even in infrastructure-constrained settings.  Facebook/WhatsApp dominates informal retail, while delivery services are scaling quickly to meet growing demand, creating new employment and supporting local small and medium-sized enterprises (SMEs), often considered the backbone of local economies, driving innovation and community-level financial growth.  Some local e-commerce platforms gaining traction include Jumia (Africa), Tiki/Shopee (Vietnam), and Daraz (Pakistan).

Uncovered alpha, global volatility, and secular tailwinds create new frontiers in emerging economies

Emerging markets beyond the BRICS are no longer on the sidelines; they're becoming the growth engines of tomorrow. Powered by young populations, rapid digital adoption, and global supply chain shifts (among other factors), these under-covered economies offer a unique opportunity for outsized returns and valuable diversification. For investors willing to move ahead of the crowd, EM ex-core could be the next frontier of alpha generation.

[i] Brazil, Russia, India, China, and South Africa.

[ii] When newer technologies are adopted without the need to first build legacy infrastructure, enabling rapid modernization and economic acceleration.

[iii] Business Process Outsourcing, the practice of companies contracting certain business functions to external service providers, often in lower-cost countries (e.g., customer service and call centers, back-office operations like data entry, payroll, or HR processing, etc.)

[iv] Popular financial services platform supporting digital wallets and mobile payments in Kenya.

[v]Ditto but in the Philippines.

[vi] Ditto but in Bangladesh.