International and Emerging-Market ETFs: How Do Currency, Time Zones and Country Risk Affect Them?

By Adam Patti, Chief Executive Officer, VistaShares | Published November 13, 2026

International ETFs hold stocks or bonds of companies and governments outside the United States, while emerging-market ETFs focus on developing economies. They allow U.S. investors to diversify beyond domestic markets in a single trade. In addition to the risks of the securities they hold, they bring three factors domestic funds do not: currency movements, differences in trading hours, and country-specific political, economic and regulatory risks.

What do international ETFs hold?

International ETFs come in several forms:

Developed markets, such as Europe, Japan, the United Kingdom, Canada and Australia.

Emerging markets, such as China, India, Taiwan, South Korea, Brazil and others, as classified by index providers.

Global or all-world funds, which include the United States alongside other markets.

Single-country and regional funds, which focus on one country or region.

International bond funds, which hold foreign government or corporate debt.

Index providers classify countries as developed, emerging or frontier based on criteria such as economic development, market size and accessibility for foreign investors. Classifications can change, and providers do not always agree, so two emerging-market funds may hold different country mixes.¹

How does currency affect returns?

When a U.S. investor owns foreign securities, returns depend on two things: the change in the security’s price in its local currency, and the change in that currency’s value against the U.S. dollar.

If foreign stocks rise 5% in local terms and the local currency rises 3% against the dollar, the U.S. investor’s return is roughly 8%. If the currency falls 3%, the return is roughly 2%. These figures are illustrative.

Unhedged funds carry this currency exposure. Currency movements can add to or subtract from returns and add volatility.

Currency-hedged funds use forward contracts or other instruments to offset most currency movements, so returns more closely reflect local market returns. Hedging has costs that depend on interest rate differences between the two currencies, and it removes currency gains as well as losses.

Neither approach is consistently preferable. The choice depends on the investor’s view of currency risk and the role of the fund in the portfolio.

Why do time zones matter?

Many foreign markets are closed during U.S. trading hours. An ETF holding Japanese or Asian stocks may trade in New York while the underlying markets are closed. Its net asset value is based on the last closing prices in those markets, which may be many hours old, while its market price reflects new information, such as moves in U.S. markets or currency changes.

This can create apparent premiums or discounts to net asset value, which often reflect the ETF price incorporating information the stale closing prices do not. Spreads can also be wider when the underlying markets are closed. Our article on ETF bid-ask spreads and premiums or discounts explains this, and trading while underlying markets are open may help.

What is country risk?

Investing abroad brings risks that vary by country:

Political and policy risk. Changes in government, regulation, capital controls or relations with other countries.

Economic risk. Inflation, currency crises, debt problems or slower growth.

Market structure. Differences in accounting standards, disclosure, settlement, liquidity and investor safeguards.

Concentration. Many emerging-market indexes are heavily weighted to a few countries and a few large companies.

Access restrictions. Some markets limit foreign ownership or impose trading restrictions.

Emerging markets generally carry more of these risks than developed markets, along with higher potential volatility. Our article on concentration risk in ETFs explains how to examine country and company weights.

How are international ETF distributions taxed?

Many foreign countries withhold tax on dividends paid to foreign investors. International funds may pass through information about foreign taxes paid, which appears on Form 1099-DIV.² In a taxable account, investors may be able to claim a foreign tax credit or deduction for those taxes. In tax-deferred accounts such as IRAs, the credit is generally not available, so foreign withholding can reduce returns. Our article on ETFs in IRAs, Roth IRAs and 401(k)s discusses account placement. Investors should consult a tax advisor.

What are American depositary receipts?

Some international funds hold American depositary receipts, which are certificates traded in the United States that represent shares of foreign companies. Others hold shares directly on foreign exchanges. Funds that hold U.S.-listed receipts may trade with tighter spreads during U.S. hours, while funds that hold local shares may offer broader coverage of each market. The prospectus and holdings list show which approach a fund uses.

How much international exposure do investors hold?

There is no standard allocation. Some investors weight regions according to global market capitalization; others hold more domestic stocks to match spending in dollars. Because U.S. companies make up a large share of global market value, broad global funds are heavily weighted to the United States. Investors can check overlap between global and domestic funds using the methods in our article on ETF portfolio overlap.

How can investors evaluate an international ETF?

Key questions include which countries and regions the fund holds and in what weights, whether it is currency hedged, its index provider’s country classifications, its concentration in top holdings and countries, its expense ratio and trading costs, and how its premiums, discounts and spreads behave. Our article on how to compare two ETFs provides a checklist, and more introductory topics are covered in our ETF basics guide.

Investments involve risk, including possible loss of principal.

Frequently asked questions

What is the difference between developed and emerging markets?

Developed markets have larger, more established economies and financial markets with broad access for foreign investors, such as Japan and much of Europe. Emerging markets are developing economies with growing but often less established markets, such as India and Brazil. Index providers set the criteria and can reclassify countries.

Should I choose a currency-hedged international ETF?

It depends on goals. Hedged funds reduce the effect of currency movements, so returns more closely track local markets, but hedging has costs and removes potential currency gains. Unhedged funds include currency exposure, which can add diversification or volatility. Neither is preferable in all conditions.

Why does my international ETF trade at a premium or discount?

When the underlying markets are closed, the fund’s net asset value is based on earlier closing prices, while its market price reflects newer information. Apparent premiums or discounts often reflect that timing difference rather than mispricing. Trading while the underlying markets are open can reduce the gap and often narrows spreads.

Can I get a tax credit for foreign taxes paid by my ETF?

In a taxable account, investors may be able to claim a foreign tax credit or deduction for foreign taxes passed through by the fund and reported on Form 1099-DIV. In IRAs and other tax-deferred accounts, the credit is generally not available. A tax advisor can explain the rules.

Are emerging-market ETFs riskier than developed-market ETFs?

Generally, emerging markets carry more political, economic, currency and market structure risks, and their prices can be more volatile. They can also be concentrated in a few countries and companies. The specific risks depend on the fund’s holdings. Country weights vary by index provider.

What is a single-country ETF?

A single-country ETF holds companies from one country, such as Japan, India or Brazil. It offers targeted exposure but concentrates country, currency and political risk, and its holdings may be dominated by a few large companies or sectors. Many investors use broad regional funds for core international exposure instead.

Cite this page: Adam Patti, "International and Emerging-Market ETFs: How Do Currency, Time Zones and Country Risk Affect Them?," VistaShares, updated November 13, 2026, https://www.vistashares.com/international-and-emerging-market-etfs/. Plain-text version.

This material is provided for educational purposes only. It is not investment, legal or tax advice, and it is not a recommendation or an offer to buy or sell any security. Information is drawn from sources believed to be reliable as of the date of publication, is not guaranteed as to accuracy or completeness, and may change without notice. Figures attributed to third parties are their estimates. Projections and forecasts are not guarantees of future results. Investors should consult their own financial, legal and tax professionals before making investment decisions. Investments involve risk, including possible loss of principal. ETF shares are bought and sold at market price, which may differ from net asset value, and brokerage commissions and other trading costs may apply.