Emerging market ETF flows have already surpassed full-year 2025 totals, driven by AI infrastructure spending and a shift toward single-country allocations, says Bobby Eng
Each month at BPM, we offer a slate of articles and content pieces that go deep on a particular topic. This month, we're focusing on ETFs, how pensions are using them and the role it plays in institutional portfolios.
According to Bobby Eng, emerging market ETFs are on pace for another record year. In fact, he’s confident they’ll surpass current flows.
After all, US-listed inflows reached $56 billion through the end of July, already surpassing the $43 billion recorded for all of 2025. Canadian-listed flows tell a similar story, hitting $2.6 billion year-to-date against $2.4 billion for the prior full year, according to Eng.
“We expect those numbers to be even higher by the end of the year, especially closer to December as we see allocators kind of shifting money around closer to the end of the year,” said Eng, SVP and head of platform and institutional ETF distribution at Franklin Templeton Investments. “It'll be another record year and definitely jumping on to the momentum that we saw last year, which was also a very good year,” he added.
AI is central to institutional ETF adoption
Artificial intelligence sits at the centre of the surge, Eng said. He pointed to heavy capital expenditure in AI infrastructure and hardware across both the US and emerging markets, drawing a sharp distinction between the current cycle and the speculative excesses of the late 1990s.
Unlike the dot-com era, today's AI leaders generate real earnings across multiple business lines, everything from chips, cloud computing, software platforms and proprietary data. Moreover, their valuations remain cheap relative to domestic markets. Semiconductor and memory manufacturing capacity continues to expand with no obvious constraints.
Eng argued the cycle is durable because adoption is still in its early stages.
“Enormous capital is being spent not only in the US, but of course in emerging markets. The earnings growth is substantial as opposed to the dot-com era where the earnings weren't really there. It was just based on momentum," he said.
Asked whether the growth is durable, Eng stands firm in his belief.
“Is it sustainable? I would think so, at least for the foreseeable future. AI adoption remains in its early stages. We're really just starting,” he said.
“Data center capacities continue to expand globally. Semiconductor manufacturer capacity doesn't seem to have any constraints at this point, and memory manufacturing continues to increase with very strong demand. We're in the early stages of the AI phenomenon versus the short-term impact,” he added.
According to Eng, broad-based EM index ETFs still capture the bulk of institutional flows, and the returns back up the interest. He said EM benchmarks are up roughly 23 per cent year-to-date compared with about 14.5 per cent for US equities.
What single-country ETF flows tell institutional allocators
But a shift is underway beneath the surface. Flows into single-country ETFs have more than doubled, reaching $11.5 billion through July versus $4.5 billion for all of 2025.
"What that tells us is that there's substantially more interest in taking emerging markets and slicing it into particular parts and making some tactical calls geographically," Eng said. “Single-country ETFs enable institutional investors and all investors to get a little bit more granular in their views in these markets.”
At a granular level, Eng noted South Korea, Taiwan, and Brazil are drawing the most targeted attention, though each for different reasons. Taiwan and South Korea remain heavily weighted in most EM benchmarks because of their dominant semiconductor industries. Eng acknowledged the concentration risk but argued institutional investors are reframing their approach.
“How investors are really thinking about it is really not viewing exposure to Taiwan and South Korea as exposures to those particular countries, but viewing it as a play on technology, AI, and semiconductor exposure,” he said.
Meanwhile, China presents a more complicated picture. While demand persists, Eng suggests flows have reversed direction as institutional investors grow more selective. Additionally, the Chinese market has expanded well beyond consumer internet platforms like Alibaba and Tencent into advanced manufacturing, electric vehicles, battery technology, and AI infrastructure.
Eng argued that China retains real competitive advantages and that investors are being adequately compensated for the geopolitical and regulatory risk but acknowledged the allocation mechanics are shifting. For example, broad-based China weightings are dropping from roughly 10 per cent to seven or eight per cent, and some allocators are moving into EM ex-China products while trade tensions and the Taiwan situation play out, Eng said.
Elsewhere, India and Brazil occupy opposite ends of the EM spectrum. Eng described India as a structural growth allocation — investors are buying into favourable demographics, an expanding and consumption-driven middle class, digitalization, and long-term GDP growth. While India commands a higher valuation than other EM countries, "investors typically accept a slightly higher multiple in terms of what they're paying because they believe the earnings growth is going to remain elevated," Eng explained.
Brazil, by contrast, is a different proposition, Eng said, as its returns are tied to commodity prices, interest rate cycles, currency movements, and fiscal policy, with the market concentrated in financials, energy, materials, and agriculture.
Eng framed it as a cyclical value play, noting Brazil trades at roughly eight times forward earnings, well below the EM average, and appeals to investors looking for falling interest rates and improving commodity prices. According to Eng, Brazil led all single-country EM ETF flows in 2025 with $2.1 billion in US-listed inflows and has already matched that figure year-to-date in 2026.
EM structural inertia a key challenge for investors
Still, institutional investors remain underweight in EM adoption and Eng believes the most common barrier to EM allocation is not active resistance but structural inertia. He noted that many plan sponsors simply don’t include emerging markets as a standalone asset class within their investment policy. Eng doesn’t frame it as having a negative view on the space, but rather a policy gap.
He suggests that’s starting to change. Eng said he has had multiple conversations with boards and investment professionals looking to add EM exposure, driven in part by underperformance tied to missing the semiconductor rally.
Other plan sponsors fold emerging markets into a broad global equity mandate and leave geographic decisions to their managers, which means EM never receives dedicated attention or a distinct allocation.
Pressed on whether the risks ultimately outweigh the rewards, Eng underscored the potential upside outweighs the risk, though the right allocation depends on each investor's risk profile. He pushed back against comparisons to the dot-com bubble, arguing the current EM cycle is built on fundamentally different ground.
"It's hard to ignore, especially with the cheaper valuations and potential upside in earnings," said Eng.
