Indian Investors Back To Buying ETFs Of China, Brazil

Market data and industry surveys show that foreign investors are increasingly redirecting their ETFs toward emerging markets, with China and Brazil emerging as clear favourites in 2025. This shift comes amid a challenging period for US equities, which have retreated in the face of economic uncertainty precipitated by its aggressive trade policies.

Indians investing abroad have to follow rules set by the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) in this regards. The Liberalised Remittance Scheme (LRS) allows for remittances up to US$ 250,000 in a financial year. Indian residents can invest in foreign companies or assets, including shares, immovable property, and mutual funds, subject to regulations, such as a cap of 10 per cent of the stake in a foreign entity.

As there is also a bar on taking control of a foreign firm through this route, most investors prefer to invest through stock market listings, including ETFs or funds that trade on exchanges and usually follow a specific index.They usually include a mix of assets like stocks or bonds.

China's ETF market has grown 134 per cent over two years to USUS$ 520 billion, while Brazil offers compelling valuations with a 9.47X P/E ratio. As a result, in recent months, ETFs like the iShares MSCI China ETF (MCHI) and the tech-driven KraneShares CSI China Internet ETF (KWEB) have seen notable inflows, including from India. 

Overall, broad emerging market ETFs like the iShares Core MSCI Emerging Markets ETF (IEMG) and the Vanguard FTSE Emerging Markets ETF (VWO) are also seeing increased activity from Indian shores. 

Analysts attribute this shift to a weakening US Dollar and expectations that the US Federal Reserve will cut rates later this year, which should benefit riskier assets like ETFs.

Brazil, a key player in the commodities sector, is also drawing ETF investments. The iShares MSCI Brazil ETF (EWZ) has surged as rising commodity prices and fiscal reforms improve investor sentiment.

However, risks remain, including currency volatility, political instability, and trade tensions. Top RBI officials said that they were aware of the return of Indian investors and felt that this was "part of the entire move to internationalise our economic underpinnings".

"The fact is, we are ourselves thinking of raising the cap on investment by foreign investors, as we want to bolster foreign investment into the country. So there is no harm if a limited amount of Indian capital ventures out," officials said. 

However, a watch is being kept on the outflows as it coincides with heavy selling by foreign portfolio investors. Officials pointed out that since India has  forex reserves of US$ 677.83 billion, "these small outflows do not represent any risk and rather may earn India a tidy profit in foreign exchange".