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What is the Emerging Markets Index?

2017-08-11T08:31:42+00:00

The term 'Emerging Markets Index' is included in the Investments edition of the Financial Dictionary. It's available on mazon in Kindle or Paperback version. See more details here.

Emerging Markets Index refers to the MSCI Emerging Markets Index. Morgan Stanley Capital International (more commonly known by its own acronym MSCI) created this index in order to follow the equity market performance of the world’s global emerging markets. This capitalization index is compiled as a float-adjusted one made up of indices following 24 emerging economies. These include the United Arab Emirates (UAE), Turkey, Thailand, Taiwan, South Africa, Russia, Qatar, Poland, Philippines, Peru, Pakistan, Mexico, Malaysia, South Korea, Indonesia, India, Hungary, Greece, Egypt, Czech Republic, Colombia, China, Chile, and Brazil.

It was in 1988 that Morgan Stanley actually launched this world-leading Emerging Markets Index. At the time, it was comprised of only 10 nations which represented less than one percent of the total global markets’ capitalization. Nowadays, the MSCI Emerging Markets Index consists of a full 24 nations that represent a more impressive ten percent of global market capitalization. The Index is similarly offered on a range of regions and market sizes or segments. It covers roughly 85 percent of the free-floating adjusted market capitalization for all of these 24 countries.

Such markets have long been counted as somewhat risky because of their added economic, political problems, and currency factor risks. No one recommends them for investors who prefer security and safety first and foremost. Those investors who become involved in these markets have to understand that there will be often higher but always volatile returns involved with the investment. Larger profits come at the tradeoff of risks of considerable losses. The advantage to such emerging markets lies in their usually lower correlation with the world’s leading developed stock markets. This means that they are an ideal component of a well-diversified portfolio which helps to decrease all around portfolio risk and similarly increase overall portfolio returns.

In no small part because of its expansion to cover all of the world’s leading developing markets, the MSCI Emerging Markets Index has become the world’s leading benchmark for category performance according to many different mutual funds which specialize in emerging market growth.

There are many followers of this Index by the diversified emerging market funds and portfolios like JPMorgan Emerging Markets Equity Fund. This is a managed pool which is heavily exposed to the MSCI EMI (as of the close of market March 31st in 2016). They had 6.5 percent in the consumer discretionary sector and another 5.5 percent in the investment company sector. They utilize this index as their performance benchmark.

The fund’s return according to NAV net asset value has been successful at closely tracking along the index even though there are distinctive differences between the two holdings. For example, the JPMorgan fund managed a 2.88 percent yearly return on an average basis all the way through March of 2016. This compared favorably to the correlating return of the index at only 14 basis points beneath it.

The index can be easily directly invested in thanks to the iShares MSCI Emerging Markets ETF exchange traded fund. It actually owns the basket of securities comprising more than 90 percent of the index holdings by weighting. Among its top ten holdings per May 30th of 2016, it held South Korean electronics powerhouse Samsung Electronics Company Limited and Chinese technology giant Tencent Holdings Limited. A number of strategists see greater opportunity in the emerging markets as a large percentage of their citizens are beginning their historic meteoric ascent from lower classes to the consumption-heavy middle classes in the coming few years.

It is important to note that the BRIC countries of Brazil, Russia, India, and China comprise 47 percent of the MSCI Emerging Markets Index. This includes index holdings with a hefty 28 percent exposure to Chinese firms, nine percent to Indian companies, seven percent to Brazilian corporations, and three percent to Russian firms.

The term 'Emerging Markets Index' is included in the Investments edition of the Financial Dictionary. You can get your copy on mazon in Kindle or Paperback version. See more details here.