How to invest in emerging markets from Poland — ETFs and strategies

What Are Emerging Markets?

Emerging markets (EM) are economies developing faster than Western countries, but carrying higher risk due to political instability, weaker institutions, and less mature financial systems. The most important emerging markets include China, India, Brazil, Taiwan, South Korea, Indonesia, Mexico, Saudi Arabia, and South Africa.

The MSCI Emerging Markets index covers over 1,400 companies from 24 countries and is the main benchmark for this asset class. It's the standard against which most EM ETFs are measured.

What many people don't realize: Poland itself is classified as an emerging market in the MSCI index system. The GPW and Polish companies like PKO BP, Allegro, CD Projekt, and Dino Polska are included in the MSCI Emerging Markets index. So if you buy a broad EM ETF, you already have some Polish exposure — albeit small (Poland is typically 1–2% of the index).

Why Include Emerging Markets in Your Portfolio?

Higher Growth Potential

Emerging market economies are growing at 4–6% GDP annually, compared to 1–2% for developed markets. This faster economic growth can translate into higher corporate earnings and stock returns over the long term. India alone is projected to become the world's third-largest economy by 2030.

Lower Valuations

EM stocks trade at significantly lower valuations than developed market stocks. As of recent years, the MSCI EM Index typically trades at a P/E ratio of 11–14x, compared to 18–22x for the S&P 500. Lower starting valuations historically correlate with higher future returns.

True Diversification

EM stocks have relatively low correlation with developed market stocks over longer periods. When the S&P 500 zigs, emerging markets sometimes zag. This reduces overall portfolio volatility — the classic diversification benefit.

Demographics

Emerging markets have younger populations, growing middle classes, and increasing urbanization. More consumers means more spending, more banking, more insurance, more technology adoption. This is a multi-decade tailwind that developed markets (with aging populations) can't match.

Currency Diversification for PLN Investors

If most of your income and assets are in PLN, EM ETFs provide exposure to a basket of currencies — Chinese yuan, Indian rupee, Brazilian real, Taiwanese dollar. While individually volatile, a diversified currency basket adds resilience to your portfolio.

Risks of Emerging Market Investing — Don't Ignore These

Political and Regulatory Risk

Governments in emerging markets can change rules overnight. China's sudden crackdown on tech companies in 2021 wiped hundreds of billions in market value. Russia's invasion of Ukraine in 2022 made Russian stocks essentially worthless for foreign investors. Brazil's political cycles create regular uncertainty. These risks are real and cannot be fully diversified away.

Currency Risk

EM currencies can depreciate sharply against the PLN (or EUR/USD). A 15% stock market gain can turn into a 5% loss if the local currency drops 10%. Over long periods, some EM currencies have experienced significant depreciation — the Turkish lira being an extreme example.

Liquidity Constraints

Smaller EM companies may have low trading volumes, leading to wider bid-ask spreads. This isn't an issue with major EM ETFs (which are very liquid), but it affects the underlying index composition and rebalancing costs.

Governance and Transparency

Corporate governance standards in some emerging markets lag behind Western norms. Minority shareholder rights may be weaker, accounting standards less rigorous, and related-party transactions more common. This is why diversified index funds (owning 1,400+ companies) are much safer than picking individual EM stocks.

Concentration Risk in China

China represents approximately 25–30% of most EM indices. This means an EM ETF is heavily exposed to Chinese economic policy, regulation, and geopolitics. Some investors address this by complementing a broad EM ETF with a separate ex-China EM fund.

Available ETFs for Emerging Markets — Detailed Analysis

Broad EM ETFs (Available Through Polish Brokers)

Top pick: iShares Core MSCI EM IMI (EIMI) Why? Lowest TER (0.18%), massive fund size (reduces closure risk), and includes small-cap companies (the "IMI" — Investable Market Index — covers 99% of market cap, vs. 85% for standard MSCI EM). Available on Xetra and London Stock Exchange, purchasable through XTB, mBank eMakler, and Interactive Brokers.

Specialized EM ETFs

EM ex-China:

• iShares MSCI EM ex-China (EMXC) — TER 0.18%
• For investors who want EM exposure without the China concentration risk

India-focused:

• iShares MSCI India (NDIA) — TER 0.65%
• For investors bullish on India's long-term growth story
• Higher TER reflects India's market access costs

China-focused:

• iShares MSCI China (ICHN) — TER 0.28%
• For tactical allocation when Chinese valuations look attractive

What to Check When Choosing an EM ETF

TER (Total Expense Ratio): The lower, the better. For broad EM ETFs, aim for 0.18–0.22%. Every 0.10% in TER costs you roughly 10,000 PLN over 20 years on a 100,000 PLN investment (assuming 8% returns).

Replication method:

• Physical (full or sampling) — The fund actually buys the underlying stocks. More transparent, but some EM stocks are hard to access directly.
• Swap-based (synthetic) — The fund uses derivatives to replicate the index. Cheaper and sometimes more accurate, but carries counterparty risk (mitigated by UCITS regulations).
• For most investors, this distinction is academic. Both methods work well for major EM ETFs.

Accumulating vs. Distributing: Accumulating (Acc) versions reinvest dividends automatically and are more tax-efficient in Poland — you defer Belka tax until you sell. Choose accumulating unless you need current income.

Base currency: Most EM ETFs are denominated in USD or EUR on European exchanges. You buy them in the listing currency (usually EUR on Xetra), and your broker converts from PLN. The underlying currency risk is to EM local currencies — the ETF denomination doesn't change this.

How Much Emerging Markets Should You Hold?

The Market-Cap Approach

Emerging markets represent approximately 11–12% of the global MSCI ACWI (All Country World Index) by market capitalization. If you want to mirror the global market, hold ~11% in EM. This is the "neutral" allocation.

Typical Portfolio Allocations

• Conservative portfolio (low risk tolerance): 5–10% in EM. Minimal exposure for diversification benefit without excessive volatility.
• Balanced portfolio (moderate risk): 10–20% in EM. The sweet spot for most investors. Meaningful diversification without dominating portfolio behavior.
• Aggressive portfolio (high risk tolerance, long horizon): 20–30% in EM. Higher expected returns but buckle up for wild rides — EM can easily drop 30% in a bad year.

The Polish Investor's Consideration

Since Poland is itself an emerging market, you already have significant EM exposure through your income, property, and any GPW investments. This means your investment portfolio might lean slightly more toward developed markets to truly diversify. If you own an apartment in Warsaw and work for a Polish company, adding 25% EM to your portfolio is piling EM-correlated risk on top of your existing EM exposure.

Suggested adjustment: If most of your net worth is in Poland (property, job, savings), consider 10–15% EM in your investment portfolio instead of 20%+. This provides diversification benefits without excessive concentration in emerging economies.

How to Buy EM ETFs Through a Polish Broker — Step by Step

Step 1: Choose Your Broker

You need a broker with access to European exchanges (Xetra, Euronext, London Stock Exchange). The best options for Polish investors:

• XTB — Polish broker, zero commission on ETFs up to 100,000 EUR/month, offers IKE/IKZE accounts with ETF access.
• mBank eMakler — Integrated with mBank, provides access to foreign exchanges. Commissions apply.
• Interactive Brokers (IBKR) — Lowest commissions for international trading, but more complex interface. Best for larger portfolios.
• Degiro — Low-cost Dutch broker popular in Poland. Limited account types (no IKE/IKZE).

Step 2: Search for the ETF

Search by ticker (e.g., EIMI) or ISIN (e.g., IE00BKM4GZ66 for iShares Core MSCI EM IMI). Make sure you're buying the right share class — look for "Acc" (accumulating) and the exchange (Xetra is usually cheapest for EUR orders).

Step 3: Place Your Order

• Market order — Executes immediately at the best available price. Simple but you might pay slightly more during volatile moments.
• Limit order — Executes only at your specified price or better. Recommended for EM ETFs, which can have slightly wider spreads than developed market ETFs.

Step 4: Consider the Currency

If your broker account is in PLN but the ETF trades in EUR, the broker will convert currency. XTB does this automatically. IBKR lets you convert manually (often cheaper). The conversion cost is typically 0.1–0.5% — not huge, but it adds up with frequent trading.

Step 5: Set Up a Monthly DCA (Dollar Cost Averaging)

The best approach for EM investing is regular monthly purchases. Set a fixed PLN amount (e.g., 500 PLN/month) and buy regardless of market conditions. This smooths out the extreme volatility that makes EM investing nerve-wracking.

Step 6: Use IKE/IKZE When Possible

XTB offers IKE and IKZE accounts with access to international ETFs, including EM ETFs. Holding EM investments in IKE means all dividends and capital gains are tax-free (withdrawal after 60). This is a massive advantage, especially for long-term EM holdings where compound growth is substantial.

Long-Term Strategy — How to Stay the Course

Emerging markets test your patience like nothing else. Here's what to expect:

The Volatility Reality

• EM stocks can rise 40–50% in a great year (2017, 2020)
• EM stocks can fall 25–35% in a bad year (2018, 2022)
• There can be entire decades where EM underperforms developed markets
• But over 20–30 year periods, EM exposure has historically improved risk-adjusted returns

Rules for EM Investing

Invest with at least a 10-year horizon. Anything shorter and you're gambling on timing. EM returns are lumpy — they come in bursts that you can't predict.

Use DCA religiously. Monthly investing removes the impossible question of "when to buy." You'll buy some months cheap, some months expensive, and it averages out.

Rebalance annually. If EM surges and becomes 25% of your portfolio (target was 15%), sell some EM and buy underperforming assets. If EM crashes to 8%, buy more. This systematic approach beats emotional decision-making.

Don't abandon EM after bad years. The worst time to sell is after a crash — you're locking in losses. The investors who held EM through the 2018–2019 downturn were rewarded in 2020–2021.

Ignore geopolitical noise. Media will always find a crisis in some EM country. If you sold every time there was bad news from an emerging market, you'd never be invested. The diversification across 24 countries in a broad EM ETF protects you from single-country disasters.

Emerging Markets vs. Developed Markets — The Diversification Math

Here's why adding EM to a developed-market portfolio helps, even though EM is more volatile individually:

Scenario A: 100% Developed Markets (MSCI World)

• Expected return: ~7% annually
• Volatility (standard deviation): ~15%

Scenario B: 85% Developed Markets + 15% Emerging Markets

• Expected return: ~7.3% annually (slightly higher)
• Volatility: ~14.5% (slightly lower!)

The portfolio with EM has higher expected return AND lower volatility. This is the magic of diversification — combining imperfectly correlated assets improves the efficient frontier.

How Freenance Can Help

Freenance allows tracking geographical exposure of your portfolio in one consolidated view. You'll see:

• What percentage of your portfolio is in emerging markets vs. developed markets vs. Poland
• How your geographical allocation changes over time as markets move
• When it's time to rebalance (e.g., EM has drifted from your 15% target to 20%)
• Your total returns broken down by region

Connect your XTB, mBank, Interactive Brokers, or Degiro accounts and see your complete global allocation.

👉 Check your EM exposure with Freenance — freenance.io

FAQ

Is Poland in the MSCI Emerging Markets index?

Yes. Poland has been classified as an emerging market by MSCI since 1995. Polish companies like PKO BP, Allegro, CD Projekt, KGHM, and Dino Polska are included in the MSCI Emerging Markets index. Poland's weight is typically 1–2% of the total index. There have been periodic discussions about upgrading Poland to "developed market" status, but as of 2026, it remains in the EM category.

Should I invest in a global ETF (MSCI ACWI) instead of separate developed + EM ETFs?

A single ACWI ETF (like SPDR MSCI ACWI — ticker IMIE, TER 0.12%) is the simplest approach — it automatically maintains roughly 88% developed and 12% emerging market allocation. The downside: you can't overweight or underweight EM separately, and you pay slightly higher TER than the cheapest separate ETFs. For most people, ACWI is "good enough" and saves the hassle of rebalancing two funds. Power users who want to tilt toward EM (or away from it) should use separate ETFs.

What about investing in individual EM stocks instead of ETFs?

Not recommended for most investors. Individual EM stocks carry company-specific risk, governance risk, and information asymmetry (you know less about a Chinese company than a Chinese investor does). The 2021 crash in Chinese tech stocks (Alibaba, Tencent) showed how quickly individual EM stocks can lose 50%+. A diversified ETF holding 1,400+ companies protects you from single-stock disasters while still capturing the EM growth story.

How does the PLN/USD and PLN/EUR exchange rate affect my EM ETF returns?

EM ETFs listed in EUR expose you to two currency layers: PLN/EUR (your conversion when buying the ETF) and EUR/local EM currencies (within the fund). In practice, the PLN has been relatively stable against the EUR (ranging 4.30–4.80 over recent years). The bigger currency swing comes from EM local currencies. Over 10+ year horizons, currency effects tend to wash out — but in any given year, they can add or subtract 5–10% to your returns.

When should I sell my EM investments?

Ideally: never (until you need the money). The power of EM investing comes from long-term compounding. Sell only when: (1) you're rebalancing and EM has exceeded your target allocation, (2) you need the money for a specific goal (down payment, retirement spending), or (3) your investment horizon has shortened below 5 years. Never sell because of a news headline about a crisis in one country — that's precisely when EM is cheapest.

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