Why CEEMEA emerging markets offer unique diversification beyond Asia’s dominance

The emerging markets landscape has undergone a dramatic transformation over the past two decades. Once characterised by a more balanced distribution across various regions, the Global Emerging Markets benchmark has evolved to become predominantly weighted toward Asia. Today, nearly two-thirds of the benchmark is concentrated in the Asia region, with China commanding an especially significant share.

This shift has created both challenges and opportunities for investors seeking genuine emerging market diversification.

The Asian Tilt Problem

Over the years, Global Emerging Markets (GEM) funds were prized for providing genuine access to a diverse array of capital markets, spanning countries that were otherwise difficult to reach through traditional investment channels. Portfolio managers sought out the most compelling companies operating within the most promising economies, constructing portfolios that truly reflected the breadth of emerging markets.

Today, however, the landscape has shifted dramatically. Investing in a global emerging markets fund now largely amounts to placing a significant bet on Asia—especially China. Success for emerging markets portfolio managers is increasingly determined by their calls on Asian, and in particular Chinese, equities. The ability to outperform the benchmark hinges on getting this region right.

This reality does not undermine Asia’s investment case. However, it highlights an important opportunity: investors stand to benefit from diversifying their emerging market allocations beyond Asia by considering regional funds such as those focused on CEEMEA. The current concentration means investors who believe they are achieving broad-based emerging market diversification are, in practice, holding portfolios heavily tilted toward Asia, with only marginal exposure to other regions.

CEEMEA’s Unique Value Proposition

The CEEMEA region encompassing Central and Eastern Europe, the Middle East, and Africa offers something increasingly rare in emerging markets: genuine diversification. This region spans three continents, each with distinct demographics, cultures, economic drivers, and debt levels.

Consider the diversity within emerging Europe alone. Greece, once the poster child of post-financial crisis distress, has transformed into one of Europe’s financial sector darlings.

Poland benefits from a highly educated workforce and impressive productivity rates, essentially approaching developed market status in terms of wages and productivity, though it faces demographic challenges with an aging population.

The Middle East presents a contrasting demographic profile with very young populations, good education levels, and manageable debt positions.

Resource-rich countries in this region are leveraging their natural advantages while simultaneously focusing on economic diversification beyond oil wealth. The push to develop society, attract expatriates, and create sustainable growth engines represents a significant structural shift.

Turkey occupies a unique position, straddling continents and benefiting from both European and Middle Eastern dynamics. Despite political volatility and fluctuating debt levels hallmarks of emerging markets it maintains high productivity rates, strong education levels, and a youthful population.

The Correlation Advantage

One of CEEMEA’s most compelling attributes is its low correlation with China and other emerging market regions. This characteristic positions a CEEMEA focused portfolio as a unique diversification tool within both global portfolios and emerging market allocations.

This means investors can enhance risk adjusted returns and benefit from a broader spectrum of economic cycles and regional growth drivers.  

The Research Opportunity

As Asia’s weight in global emerging market benchmarks consistently increased, research from investment banks naturally put greater emphasis on companies operating in Asia. While large benchmark names in CEEMEA still receive coverage, there’s significantly more opportunity to exploit market inefficiencies due to reduced research focus.

This research gap presents unique opportunities for astute active managers with deep local market expertise. Liquidity in CEEMEA markets—whether in Poland, the Gulf states, South Africa, or Turkey—is largely driven by domestic investors. Navigating these markets successfully demands an understanding of the nuances and dynamics involved in investing alongside local participants.

Beyond Benchmark Constraints

The concentration toward large, often government-related benchmark names in emerging markets creates another opportunity.

These companies are frequently bureaucratic, cyclical, and offer limited growth prospects. While they may provide high dividends, they’re poorly positioned to drive meaningful capital appreciation.

Active management in CEEMEA becomes particularly valuable when focused on companies outside the benchmark’s largest constituents.

The region offers numerous well-managed companies with strong growth prospects that don’t suffer from the inefficiencies common among companies with a large benchmark weight.

Strategic Portfolio Positioning

For those looking to invest in emerging markets, CEEMEA stands out as a way to diversify beyond the Asia-heavy focus of most global emerging market funds. Whether added alongside Asian positions or chosen as a dedicated emerging market allocation, CEEMEA brings meaningful diversification to a portfolio.

This region’s unique blend of continents, varied economic engines, and low correlation with other major emerging markets make it especially attractive.

As passive strategies like ETFs continue to dominate, active management in regions such as CEEMEA becomes all the more important. It enables investors to capture market inefficiencies and create genuinely diversified exposure across the emerging market landscape.

By Adnan El-Araby, Co-Portfolio Manager of Barings Emerging EMEA Opportunities PLC

Adnan El-Araby is the Co-Manager of Barings Emerging EMEA Opportunities PLC. The Company’s investment objective is to achieve capital growth, principally through investment in emerging and frontier equity securities listed or traded on Eastern European, Middle Eastern and African (EMEA) securities markets.

He has over 14 years EM investment experience and has covered the resource sector, technology & media, industrials, and healthcare in the EMEA region during his tenure at Barings