KEMX: A Precision Base for Customized China Exposure
Modern portfolio construction requires flexibility. Investors look for tools that aim to offer different exposures to different geographic regions as global markets evolve and correlations, which measure how closely (or not closely) different assets move together, across those markets and their assets shift. China's emergence and growth as a major, and sometimes majority, constituent of emerging market indices has created upside and downside for investors seeking to customize their global exposures.
The KraneShares MSCI Emerging Markets ex China Index ETF (KEMX) seeks to address this challenge of customization by enabling broad market access to emerging markets while excluding China entirely. This approach enables investors to tightly control their China exposure rather than simply accepting whatever weightings broad emerging market benchmarks dictate.
Let’s explore KEMX and how it may be able to help investors.
The Necessity and Art of Separate Sovereign Allocations
The rest of the emerging markets and China have experienced a decoupling in recent years. This has been particularly visible since the pandemic when Beijing's policy changes frequently dictated market sentiment.¹
In addition, returns have diverged. China has been facing unique macro challenges while other emerging markets have demonstrated varied performance patterns driven by their own distinct economic drivers. This divergence has created a compelling rationale for treating China as a distinct allocation rather than bundling it within a simple but incomplete emerging market exposure.
Another twist is that many global investors already maintain direct China allocations through dedicated funds or individual securities. Adding traditional emerging market funds that include China often results in unintended concentration.
KEMX tracks the MSCI Emerging Markets ex China Index which provides exposure to large-cap and mid-cap companies across 23 emerging market countries while completely excluding China and Hong Kong. This solves for the concentration issue and provides a foundation for building customized emerging market portfolios.
Emerging From Behind China's Shadow
As much as China remains the primary focus for most EM allocations, the remaining emerging market universe offers their own distinct investment characteristics and growth drivers. India, Taiwan, South Korea, and Brazil are all robust economies, and the remaining members present policy environments and market dynamics that operate independently of China's influence.
Technology companies across all of these markets are driving innovations in semiconductors, telecommunications, and more broadly across digital services. The semiconductor industry is projected to reach $1 trillion by 2030. Many of the leading manufacturers for those products are located in emerging markets outside China.²
KEMX enables investors wishing to access these diverse opportunities. It does so without the complexity of managing individual country allocations or attempting to screen China exposure from broader emerging market funds using complicated hedging strategies.
Bespoke Country Allocation
The customization that KEMX can help to provide becomes particularly valuable when it is combined with dedicated China exposures gained from other vehicles.
This approach allows investors to weight China not just according to their conviction and risk tolerance but also to the sector level while maintaining broad emerging market diversification.
For instance, investors bullish on China's long-term tech sector growth potential can overweight dedicated China tech funds in addition to their standard China fund while using KEMX to capture the remaining emerging market opportunity.
Those seeking reduced China exposure can underweight dedicated China allocations altogether while still maintaining emerging market participation through KEMX. This flexibility has proven relevant given China's unique position on the international stage when it comes to facing trade tensions, regulatory changes, and economic transitions.
The segmented approach can address many timing considerations that pop up. China’s policies evolve and market conditions change. KEMX lets investors dial up or dial down their dedicated China exposure independently of their broader emerging market allocation so they can focus on the evolving circumstances. This dynamic capability may help manage risk during volatile periods.
Building Flexible Emerging Market Exposure
KEMX positions investors to capture broad emerging market themes while maintaining complete flexibility over their China exposure.
KraneShares MSCI Emerging Markets ex China Index ETF (KEMX) offers investors a tool that could help build emerging market exposure to their personal preferences. As portfolio construction continues to shift towards a greater level of customization, investors can design their China allocation strategy with intention while capturing the potentially compelling opportunities emerging markets provide beyond the world's second-largest economy.
1 "The case for emerging markets ex-China," abrdn, accessed June 16, 2025, https://www.aberdeeninvestments.com/en-us/investor/insights-and-research/the-case-for-emerging-markets-ex-china.
2 "Beyond China: What does the rest of the EM equity world have to offer?" Wellington Management, November 29, 2023, https://www.wellington.com/en/insights/emerging-markets-equity-ex-China.
3 "New Horizons: Rethinking Emerging Markets and China," Goldman Sachs Asset Management, accessed June 16, 2025,https://am.gs.com/en-us/advisors/insights/article/2025/new-horizons-rethinking-emerging-markets-and-china.
Note: Diversification does not ensure a profit or guarantee against a loss.
For KEMX standard performance, top 10 holdings, risks, and other fund information, please click here.
Carefully consider the Funds’ investment objectives, risk factors, charges and expenses before investing. This and additional information can be found in the Funds’ full and summary prospectus, which may be obtained by visiting: www.kraneshares.com/kemx. Read the prospectus carefully before investing.
Risk Disclosures:
Investing involves risk, including possible loss of principal. There can be no assurance that a Fund will achieve its stated objectives. Indices are unmanaged and do not include the effect of fees. One cannot invest directly in an index.
This information should not be relied upon as research, investment advice, or a recommendation regarding any products, strategies, or any security in particular. This material is strictly for illustrative, educational, or informational purposes and is subject to change. Certain content represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results; material is as of the dates noted and is subject to change without notice.
The Fund may invest in derivatives, which are often more volatile than other investments and may magnify the Fund’s gains or losses. A derivative (i.e., futures/forward contracts, swaps, and options) is a contract that derives its value from the performance of an underlying asset. The primary risk of derivatives is that changes in the asset’s market value and the derivative may not be proportionate, and some derivatives can have the potential for unlimited losses. Derivatives are also subject to liquidity and counterparty risk. The Fund is subject to liquidity risk, meaning that certain investments may become difficult to purchase or sell at a reasonable time and price. If a transaction for these securities is large, it may not be possible to initiate, which may cause the Fund to suffer losses. Counterparty risk is the risk of loss in the event that the counterparty to an agreement fails to make required payments or otherwise comply with the terms of the derivative.
The Fund is subject to the political, social or economic instability associated with investing internationally which may cause a decline in value. Emerging markets involve heightened risk related to the same factors as well as increase volatility and lower trading volume. Fluctuations in currency of foreign countries may have an adverse effect to domestic currency values.
The Fund may invest in Initial Public Offerings (IPOs). Securities issued in IPOs have no trading history, and information about the companies may be available for very limited periods. In addition, the prices of securities sold in IPOs may be highly volatile. In addition, as the Fund increases in size, the impact of IPOs on the Fund’s performance will generally decrease. Narrowly focused investments typically exhibit higher volatility. The Fund’s assets are expected to be concentrated in a sector, industry, market, or group of concentrations to the extent that the Underlying Index has such concentrations. The securities or futures in that concentration could react similarly to market developments. Thus, the Fund is subject to loss due to adverse occurrences that affect that concentration.
In addition to the normal risks associated with investing, investments in smaller companies typically exhibit higher volatility.
ETF shares are bought and sold on an exchange at market price (not NAV) and are not individually redeemed from the Fund. However, shares may be redeemed at NAV directly by certain authorized broker-dealers (Authorized Participants) in very large creation/redemption units. The returns shown do not represent the returns you would receive if you traded shares at other times. Shares may trade at a premium or discount to their NAV in the secondary market. Brokerage commissions will reduce returns. Beginning 12/23/2020, market price returns are based on the official closing price of an ETF share or, if the official closing price isn't available, the midpoint between the national best bid and national best offer ("NBBO") as of the time the ETF calculates the current NAV per share. Prior to that date, market price returns were based on the midpoint between the Bid and Ask price. NAVs are calculated using prices as of 4:00 PM Eastern Time.
The KraneShares ETFs and KFA Funds ETFs are distributed by SEI Investments Distribution Company (SIDCO), 1 Freedom Valley Drive, Oaks, PA 19456, which is not affiliated with Krane Funds Advisors, LLC, the Investment Adviser for the Funds, or any sub-advisers for the Funds.