Global X's Emerging Markets Ex-China ETF posted positive returns in Q1 2026, riding commodity strength and a widening valuation discount versus developed markets. The $1.2B fund captured gains in resource-heavy markets while Chinese equities faced continued pressure from regulatory uncertainty and domestic demand weakness.
The quarter saw emerging market equities outside China benefit from a 12% rally in industrial metals and sustained energy prices above $82 per barrel for Brent crude. India and Brazil—representing 41% and 18% of EMM's country allocation respectively—delivered index gains despite Federal Reserve policy remaining restrictive at 4.75-5.00%. The fund's exclusion of China, which comprises roughly 28% of the MSCI Emerging Markets Index, positioned it to avoid the -6.4% drawdown in Chinese A-shares during the period.
The performance divergence matters because it marks the third consecutive quarter where ex-China EM exposures outpaced the broader index, signaling a structural shift in allocator preferences. Single family offices have begun treating China as a separate sleeve rather than bundled emerging market exposure, reducing concentration risk while maintaining EM growth exposure. The valuation gap has widened to 3.2x forward earnings for ex-China markets versus 11.8x for the S&P 500, creating entry points for allocators willing to accept currency and political volatility.
Commodity sensitivity remains the critical variable. EMM's top holdings—including positions in Indian financials, Brazilian materials, and South African miners—carry direct exposure to global industrial demand. A Chinese stimulus package or US recession would reverse these flows within weeks. The fund's 0.18% expense ratio makes it a liquid vehicle for tactical tilts, but the commodity correlation means this is momentum exposure, not defensive positioning.
Allocators should monitor May's Indian election results, Brazil's central bank policy meetings in late Q2, and any Chinese fiscal stimulus announcements. Commodity prices above $4.20 for copper and sustained crude near $80 would support continuation. A breakdown in industrial metals would trigger rapid rotation back to quality US equities.
The valuation discount persists because the risks are real. What changed in Q1 is that commodity strength finally compensated for that uncertainty at a positive carry.