Markets

MSCI Emerging Markets Index

What is the MSCI Emerging Markets Index?

The MSCI Emerging Markets Index is a selection of stocks designed to track the financial performance of major companies in rapidly developing countries. It is one of many indices created by MSCI Inc. (formerly MSCI).

U.S. investors looking to buy global stocks can buy shares in exchange-traded funds (ETFs) that reflect the index. There are also many ETFs and mutual funds that use the MSCI Emerging Markets Index as a benchmark for their own performance.

  • The MSCI Emerging Markets Index measures the financial performance of companies in fast-growing economies around the world.
  • The index tracks mid-cap and large-cap stocks in 25 countries.
  • Its major holdings are now concentrated in Asian and Indian companies in the information technology, financials and consumer discretionary sectors.
  • Investors can invest in the index through ETFs that reflect the index or funds benchmarked against the index.
  • All emerging market funds are considered long-term, high-risk investments with significant potential for gains and losses.

Learn about the MSCI Emerging Markets Index

The MSCI Emerging Markets Index reflects the performance of large-cap and mid-cap companies in 25 countries. All are defined as emerging markets. That is, their economy or some sector of the economy is considered to be rapidly expanding and actively participating in global markets.

The MSCI Emerging Markets Index currently includes locations in Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, South Korea, Kuwait, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa , Taiwan, Thailand, Turkey and the United Arab Emirates.

The index was created in 1988. At the time, companies from only 10 countries were represented. Today, the index is widely used to measure the economic performance of emerging market companies. Emerging market ETFs and mutual funds also use it as a benchmark against which to measure their own performance.

MSCI has a number of indices that track stocks around the world, including the MSCI World Index, which tracks stocks in developed countries, and the MSCI All Country World Index, which tracks a broad selection of stocks from developed and emerging countries.

MSCI Emerging Markets Index Performance

Through December 2021, the MSC Emerging Markets Index had a one-year net return of -2.54%, a five-year annualized return of 9.87%, and a ten-year annualized return of 5.49%. Since its inception on December 29, 2000, it has returned an annualized rate of 8.97%.

By comparison, the MSCI World Index returned 21.82% over a one-year period, 15.03% over a five-year period, and 12.70% over a 10-year period. Since December 29, 2000, it has returned an annualized 6.72%.

The MSCI ACWI Index has returned 18.54% over the past year, 14.40% over the five-year period and 11.85% over the ten-year period. It has returned 6.68% since December 29, 2000.

Invest in the MSCI Emerging Markets Index

The MSCI Emerging Markets Index is not a fund in itself. However, investors can buy shares in exchange-traded funds or mutual funds that buy stocks listed in the index.

For example, the iShares MSCI Emerging Markets Index ETF (EEM) invests at least 80% of its assets in stocks and American depositary receipts included in the index. There are several other ETFs that mirror the MSCI Emerging Markets Index, but the iShares fund is by far the largest.

There are also funds that do not reflect the MSCI Emerging Markets Index, but use it as a benchmark against which to measure their own performance. These include the Avantis Emerging Markets Equity ETF (AVEM), the Innovator MSCI Emerging Markets Power Buffer ETF January Series (EJAN) and the Innovator MSCI Emerging Markets Power Buffer ETF July Series (EJUL).

There are many other options for emerging market ETFs and emerging market mutual funds that track other indices, such as the FTSI Emerging Markets Index. These include managed mutual funds that do not reflect the index but pick their own stocks.

Emerging markets are considered risky investments due to political risks and currency exchange rate fluctuations. Investors turning to emerging markets should expect volatile returns. The potential gains are huge, as are the potential losses.

They can be used to add some variety to a U.S. asset-heavy portfolio.

MSCI Emerging Markets Index Composition

As of December 2021, the index reflects the performance of 1,420 constituents in 25 countries. The top 10 are:

  • TSMC (Taiwan)
  • Tencent Holdings (China)
  • Samsung Electronics (South Korea)
  • Alibaba Group Holding (China)
  • Meituan B (China)
  • Reliance Industries (India)
  • Infosys (India)
  • China Construction BK H (China)
  • MediaTek (Taiwan)
  • JD Hong Kong (China)

Overall, the index is heavily weighted among Chinese companies, accounting for 32.41% of its composition, followed by Taiwanese companies with 16.09%, and South Korea and India each with more than 12%.

In terms of its industry composition, information technology, financials and consumer discretionary dominate.

advantage

  • Provides an easy-to-track benchmark for global growth investments

  • Provides a broad survey of the performance of developing economies around the world

  • Focus on relatively conservative large and medium-sized companies

shortcoming

  • Not as diverse as other global indices

  • Oriented to a very long-term investment horizon: short- and medium-term returns tend to lag

  • Given its focus on emerging markets, the scale of risk is inherently high

Frequently Asked Questions about the MSCI Emerging Markets Index

Below are answers to some frequently asked questions about the MSCI Emerging Markets Index.

What is the MSCI Emerging Markets Index?

Like the Dow Jones Industrial Average, the MSCI Emerging Markets Index is a stock pick. Each is considered a leader in its industry. Collectively, their daily performance indicates the general direction of the market.

For the purposes of the MSCI Emerging Markets Index, these stocks were chosen to represent the performance of companies in fast-growing developing markets.

Which countries are included in the MSCI Emerging Markets Index?

The countries and stocks in the index change from time to time. As of the end of 2021, they include Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, South Korea, Kuwait, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey and the United Arab Emirates.

The index is rebalanced twice a year. At that point, the weight of the 1,400 or so stocks tracked by the index could increase or decrease, or decrease entirely.

What does the MSCI World Market Index consist of?

The MSCI World Mark Index tracks the performance of large and mid-cap stocks across 23 developed countries in North America, Western Europe and Asia Pacific.

Less than 12% of the index is made up of stocks from emerging market countries, and more than half of the index is made up of U.S. companies.

Is MSCI owned by Morgan Stanley?

MSCI stands for investment research firm Morgan Stanley Capital International, now MSCI Inc., and has been a fully independent and independent public company since 2009. There are more than 200,000 MSCI indices used to track the performance of industries, sectors, and regions.

The indices are used by institutional investors, stock pickers, hedge fund managers and the media as bellwethers for the performance of the sectors of the economy they track.

These indices are also used as the basis for ETFs that invest in stocks listed in the index in proportion to their weighting in the index. Other ETFs do not reflect the index, but use it as a benchmark against which to measure their own performance.

MSCI does not buy stocks in its index. It makes money by licensing the index to financial companies that create ETFs that mirror them.

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