Rotating My Emerging Markets Exposure: From IEMA to KWEB
Why I sold my entire EM position and went all-in on Chinese internet
I run an All-Weather portfolio — simple, balanced, no big bets. Eight percent of it has always been allocated to emerging markets, traditionally through the MSCI Emerging Markets index (EEM/IEMA).
The philosophy was straightforward: if the position drifted from 8%, I’d rebalance. No rotation, no market timing.
Why I started questioning IEMA
The MSCI Emerging Markets index has become heavily concentrated in semiconductors — TSMC alone sits at ~11.5% of IEMA, with Samsung and SK Hynix adding another ~7%. People talk about the S&P 500 being over-concentrated in the Magnificent 7. Emerging Markets has its own version of that problem, just in semis and specifically in Taiwan and South Korea.
I believe semiconductors are overheated. Yes, AI demand for chips is real and massive — but the valuations have run far ahead of fundamentals.
The first rotation: IEMA → CBUK (partial)
A few months ago I rotated 3% of my portfolio from IEMA into CBUK (iShares MSCI China Tech), keeping 5% in IEMA. The goal was to reduce semi exposure while adding weight to beaten-down Chinese internet and AI names — Alibaba, Tencent, Baidu — that I believe are critical players in China’s AI race. China cannot afford to fall behind, and at some point the regulatory headwinds that have crushed these companies will ease.
The full rotation: everything into KWEB
More recently, I made a more aggressive call: I sold my entire IEMA position and rotated it fully into KWEB (KraneShares CSI China Internet ETF).
I initially considered staying in CBUK, which blends Chinese internet names with some semiconductor exposure. But looking at the relative performance chart between CBUK and KWEB, the two had tracked each other closely for a long time — and recently a gap had opened up in favor of CBUK. That divergence made KWEB look like the more attractive entry.
KWEB is pure Chinese internet: e-commerce, social media, digital services. Zero semiconductor weight. Exactly the exposure I want.
Semiconductors: IEMA (19.6%), CBUK (9.2%), KWEB (0.0%)
E-Commerce: IEMA (2.2%), CBUK (20.4%), KWEB (30.2%)
Internet & Software: IEMA (3.3%), CBUK (22.2%), KWEB (20.5%)
The thesis
Chinese tech names go through cycles — periodic selloffs driven by regulatory fear and macro headwinds, followed by sharp recoveries. These companies are now central to China’s AI ambitions. That’s a structural tailwind that’s hard to ignore.
My play is KWEB vs. EEM: if Chinese internet rebounds while the semiconductor-heavy EM index gets hit by a semi correction, I rotate back from KWEB into IEMA and capture both moves.
Is this more of a value/tactical bet than my usual approach? Absolutely. I’m aware this sits awkwardly in an All-Weather framework. But the confluence of semi overvaluation and Chinese tech undervaluation felt too significant to ignore.
This is not investment advice. These are my personal decisions, shared for informational purposes only. Do your own research and consult a financial professional before making any investment decisions. I'll be posting updates on how this plays out — subscribe so you don't miss them.