Canadian investors have a natural tendency to stay close to home. We recognize companies such as Royal Bank, Enbridge, Canadian National Railway and Fortis. We understand the TSX, we’re familiar with the Canadian economy, and many of us feel more comfortable owning businesses we see around us every day. There’s nothing wrong with that. I own Canadian companies myself.
The problem is that Canada represents only a small piece of the global stock market. Our market is also heavily concentrated in financials, energy and materials. When we invest only in Canada—and perhaps add some exposure to the United States—we can miss businesses operating in some of the fastest-growing parts of the world. That’s where emerging markets come in.
Countries such as India, China, Brazil, Taiwan, South Korea, Indonesia and Mexico can provide access to growing populations, expanding middle classes, rising consumer spending and developing financial systems. The IMF currently expects emerging and developing economies to grow by approximately 3.8% in 2026, compared with much slower growth across advanced economies. That doesn’t automatically make their stocks better investments, but it explains why these markets deserve at least some attention. (IMF)
The Biggest Misunderstanding
The biggest misunderstanding is that faster economic growth automatically produces better stock market returns. It doesn’t. A country can have a booming economy while its stock market struggles. Investors may have already paid too much for that expected growth. Governments can interfere with businesses. Currency movements can erase investment gains. A country’s economic success may not flow evenly to publicly traded shareholders.
The reverse can also happen. A slow-growing economy may contain excellent companies trading at attractive prices. This is why I wouldn’t invest in an emerging-market ETF simply because India is growing quickly or because China appears inexpensive. The investment still needs to make sense at the price I’m paying.
Emerging markets also aren’t one single investment theme. Taiwan’s market is heavily connected to semiconductors. Brazil is influenced by financials, commodities and energy. India has a growing consumer economy. China has a much larger government presence in its corporate sector. Putting all of these countries under one label can make the category sound more straightforward than it really is.
How I Think About Emerging Markets
Personally, I view emerging markets as a supporting piece of a diversified portfolio—not the foundation. My core holdings would still be built around businesses and markets I understand well. That would likely include Canadian stocks, broad TSX exposure, U.S. equities and developed international markets. Emerging markets would then provide access to economies, industries and demographic trends that my core portfolio may be missing.
I’m not trying to predict which country will become the next economic powerhouse. I don’t think most investors need to make that bet. Instead, I’d own a broad basket of companies and allow the exposure to work over a long period. Some countries will disappoint. Others may perform far better than expected. Diversification means I don’t need to identify the winner in advance.
The allocation doesn’t need to be huge, either. For many investors, emerging markets could represent somewhere around 5% to 10% of the equity portion of a portfolio. An all-in-one asset allocation ETF may already include a similar exposure, which means you could own emerging markets without purchasing a separate fund. Before adding anything, I’d check what I already own.
Breaking It Down for Canadian Investors
The simplest way for most Canadians to invest in emerging markets is through an exchange-traded fund listed on the TSX. For example, the iShares Core MSCI Emerging Markets IMI Index ETF, trading under the ticker XEC, provides exposure to more than 1,500 companies across emerging markets. Vanguard’s VEE is another Canadian-listed ETF designed to track a broad emerging-markets index. (BlackRock) Using a Canadian-listed ETF means you can purchase the investment in Canadian dollars through a normal brokerage account.
You don’t need to research individual companies in unfamiliar markets or open an overseas trading account. You can generally hold these ETFs in a TFSA, RRSP, FHSA or non-registered account. However, the account decision still matters. Inside a TFSA, your Canadian investment gains and withdrawals are tax-free, but foreign dividends may still be reduced by withholding taxes before they reach your account. The CRA confirms that foreign dividend income paid into a TFSA can be subject to foreign withholding tax. (Canada)
In a non-registered account, foreign dividends don’t receive the Canadian dividend tax credit. Depending on the structure of the ETF and the taxes withheld, you may be able to claim a foreign tax credit for eligible foreign taxes paid. (Canada) I wouldn’t let relatively small withholding-tax differences determine my entire portfolio, though. Asset allocation, risk tolerance and time horizon matter far more.
An FHSA deserves extra caution. If I expected to use the money for a home purchase within the next few years, I wouldn’t put a large portion into volatile emerging-market stocks. Qualifying FHSA withdrawals can be made tax-free, but that tax benefit doesn’t protect you from a market decline right before you need the down payment. (Canada)
How I’d Apply It
If I were starting today, I’d first decide whether I wanted to manage several ETFs or use one all-in-one portfolio ETF. For someone who values simplicity, an all-in-one fund may be enough. Many already combine Canadian, U.S., developed international and emerging-market exposure in one portfolio. If I were building the portfolio myself, I’d probably keep emerging markets between 5% and 10% of my equities. I’d use a broad, low-cost ETF rather than selecting individual countries.
I’d also add money gradually through regular contributions instead of waiting for the “perfect” entry point. Emerging markets can move sharply in both directions, and I don’t trust myself—or anyone else—to consistently predict those turns. Then I’d rebalance periodically. If emerging markets surged and became too large, I’d trim the position back toward my target. If they declined, new contributions could bring the allocation back up. That process removes emotion from the decision.
Mistakes I’d Avoid
The first mistake would be chasing whichever country recently delivered the highest returns. By the time an investment becomes exciting, much of the optimism may already be reflected in its price. I’d also avoid buying several ETFs that hold many of the same companies. Owning XEC, VEE and an all-in-one ETF may look diversified, but it could simply duplicate the same exposure.
Another mistake is underestimating currency and political risk. Emerging-market businesses can perform well while a falling local currency weakens the return for a Canadian investor. Government policy, trade restrictions and regulatory changes can also affect shareholders quickly.
Finally, I wouldn’t abandon the allocation after a few disappointing years. Emerging markets can underperform for long stretches. If I’m not prepared to hold through that uncertainty, I probably shouldn’t own them in the first place.
Final Thoughts
So, is emerging-markets investing worth it for Canadians in 2026? I think it can be—but in moderation. Emerging markets provide access to businesses, consumers and economic growth that we can’t fully capture through the TSX or the U.S. market alone. They can improve diversification and potentially contribute to long-term returns. They also come with real risks: volatility, currency swings, political interference, weaker shareholder protections and unpredictable market cycles.
The way I see it, emerging markets don’t need to become a major portfolio bet. A relatively small allocation inside a properly diversified, long-term portfolio may be enough. You don’t have to know which country will lead the world over the next 20 years. You simply need a sensible plan that allows you to participate without betting your financial future on one outcome.
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