Latest / The Emerging Markets Podcast with Fexingo: Developing Economies, Growth, and Investment / Why Emerging Market Stocks Are Diverging in June 2026
Transcript
- Lucas: So it's late June 2026, and if you look at the emerging market ETF space right now, you're seeing something that's becoming harder and harder to ignore: a real divergence between China-focused funds and the rest of the EM world. Luna: You mean how FXI and KWEB are both down more than 3% in the last five days, while India's INDA is actually up over 1%? Lucas: Exactly. The iShares China Large-Cap ETF, FXI, is at 32.36 — down 3.8% in five days. KWEB, the Chinese internet ETF, is at 24.30, down 4.3%. Meanwhile, the India ETF INDA is at 49.63, up 1.2%. That's a pretty stark contrast for two of the largest emerging economies. Luna: And it's not just a five-day blip. Look at the broader trend — the yuan has weakened to 6.77 per dollar, and Chinese stocks like Alibaba and JD are getting hammered. Alibaba down 7% in five days, JD down almost 9%. Lucas: Right. The narrative around China has shifted pretty dramatically in the last year. You've got deflationary pressures, a property sector that still hasn't found a floor, and now trade tensions are flaring up again. The market is pricing in a prolonged slowdown. Luna: Meanwhile, India is riding a wave of manufacturing relocation — companies diversifying away from China. And the data backs it up: India's GDP growth has been outperforming, and the government's production-linked incentive schemes are actually drawing real investment. Lucas: So the question becomes: is this a temporary divergence, or are we seeing a structural decoupling within emerging markets? I think the evidence is leaning toward the latter. China's model — export-led growth with state-directed credit — is hitting headwinds that aren't going away. Luna: But let's not oversimplify. India has its own challenges — valuation is one. INDA is trading at a pretty hefty premium to historical averages. Some analysts are calling it overbought. Lucas: That's fair. The India story is real, but it's not cheap. And the broader EM universe is still being dragged down by China's sheer weight. The VWO, which tracks all emerging markets, is down 1.3% in five days, largely because China is such a big component. Luna: So if you're an investor, you really have to pick your spots. It's not a 'buy EM' call anymore — it's a 'buy India, maybe avoid China' kind of approach. Lucas: And there are other pockets of strength too. Look at South Korea — the EWY ETF is down 3.8% in five days, but that's mostly driven by the broader tech sell-off. Individual stocks like SK Hynix surged 12% yesterday after Micron's earnings showed memory demand is still robust. Luna: That's a good point. Micron basically reported that the memory chip shortage is back, driven by AI demand. And SK Hynix is a key supplier. So even within a down market, there are stories that work. Lucas: But the headline is still divergence. Brazil's EWZ is down slightly, Mexico's EWW is down 4.6% — that one is getting hit by the strong dollar and concerns about nearshoring hype fading. Taiwan's EWT is flat. Luna: So it's not just a China versus India story. It's really a stock-picker's market within EM. Lucas: Which brings me to something I've been thinking about: the dollar index is at 120.4, up again this week. A strong dollar is historically a headwind for all emerging markets, because it makes dollar-denominated debt more expensive and capital flows tend to reverse. Luna: But India seems to be bucking that trend. Why? Lucas: Part of it is that India's growth is largely domestic-driven. Exports are a smaller share of GDP than in China or Korea. So the strong dollar hurts less. Also, India's foreign exchange reserves are pretty healthy — they can defend the rupee if needed. Luna: And China? They're letting the yuan depreciate, which is classic in a deflationary environment. Cheaper currency to boost exports. But it's a double-edged sword — it also signals weakness. Lucas: Exactly. And that's why Chinese stocks are getting sold off. The market sees the yuan depreciation as a symptom, not a solution. Alibaba, JD, Baidu — all down significantly this week. Luna: So for the long-term investor, what's the takeaway? Is it time to overweight India and underweight China? Lucas: I think it's more nuanced than that. China still has world-class companies in certain sectors — semiconductors, EVs, renewables. But you have to be selective. The broad-based China rally of the last decade is probably over. Luna: And India — the risk is that the optimism gets ahead of reality. We've seen that before in emerging markets. Lucas: Absolutely. But the structural case for India is strong: demographics, digital infrastructure, manufacturing incentives. The question is execution. Luna: You know, this kind of analysis — really digging into the data and the narratives — it's exactly what keeps me coming back to this show. Lucas: Glad to hear it. And honestly, it's what keeps us doing it. A couple of dollars a month from listeners — buy me a coffee dot com slash fexingo — genuinely makes a difference in keeping these episodes ad-free and independent. Luna: Yeah, it's a small thing that adds up. We don't do sponsors, so listener support is what keeps the lights on. Lucas: Right. So back to the divergence — one last data point I want to flag: the trade-weighted dollar index is at 120.4, up from 119.39 last week. That's a 0.8% move in a week. If the dollar keeps rallying, it's going to put more pressure on EM assets broadly. Luna: Especially those with high external debt. But again, India seems relatively insulated. Lucas: For now. But no market is an island. If China's slowdown deepens, it will affect global trade and commodity demand, which hits Brazil, Chile, and others. Luna: So the EM story in June 2026 is really about navigating these divergences. It's not a uniform asset class anymore. Lucas: Exactly. And that's what makes it interesting, but also more challenging. You can't just buy the index and hope. You need to understand the specific drivers in each country. Luna: Or you could just listen to this show and let us do the work for you. Lucas: That's the idea. Next episode, we'll look at one of those bright spots — maybe the memory chip boom and what it means for SK Hynix and Taiwan. But for now, that's the emerging market landscape as of late June 2026.