What Is the MSCI Emerging Markets Index?

The MSCI Emerging Markets Index stands for Morgan Stanley Capital International (MSCI), and is an index used to measure equity market performance in global emerging markets. It is just one index created by MSCI, which has been constructing and maintaining them since the late 1960s.

According to its fact sheet, the MSCI Emerging Market Index captures mid and large caps across more than two dozen emerging market countries. The index is a float-adjusted market capitalization index, and represents 13% of global market capitalization.

Understanding MSCI Emerging Markets Index

The MSCI Emerging Markets Index consists of 26 developing economies including Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey, and the United Arab Emirates.

Since its inception in 1988, the MSCI Emerging Markets Index has grown significantly. What was once just 10 nations that was represented by less than 1% has increased tenfold. Due to the successes it has achieved, the MSCI is generally used as a performance benchmark for mutual funds and market growth.

As of June 2019, the fund's one-year return to investors was 1.21%, while its 10-year return netted investors 5.81%. That's significantly lower than the MSCI ACWI and the MSCI World Indexes, which both showcased a one-year return of 5.74% and 6.33%, and 10.15% and 10.72 for their 10-year returns.

Investing in the Index

Investors can invest directly in the index. Some shares of the MSCI Emerging Markets exchange-traded fund (ETF) own several securities, and hold approximately 90% of the index available on iShares.

Investors can invest directly in the MSCI Emerging Markets Index.

Due to the inherent political and monetary risks, emerging markets are considered a risky investment. Investors who turn to emerging markets should be prepared to receive volatile returns. While these returns may be significant, the opportunity for losses may be even larger. Emerging markets allow for diversity in an investor’s portfolio, since they are less involved with already developed markets. This may reduce the overreaching risks associated with them.

Key Takeaways

  • The MSCI Emerging Markets Index is used to measure equity market performance in global emerging markets. 
  • The index captures mid and large caps in 26 countries including China, India, Korea, Mexico, Taiwan, and the United Arab Emirates.
  • Investors can invest in the index directly.
  • The index had about 1,200 constituents, and was weighted heavily in China, South Korea, and Taiwan.

Index Composition

As of June 2019, the index had 1,194 constituents. The top ten were:

  • Tencent Holdings (China)
  • Alibaba Group (China)
  • Samsung Electronics (Korea)
  • Taiwan Semiconductor (Taiwan)
  • Naspers (South Africa)
  • China Construction (China)
  • Ping An Insurance (China)
  • China Mobile (China)
  • Housing Dev Finance (India)
  • Reliance Industries (India)

The index is most heavily weighted in China at 31.55%, South Korea at 12.37%, Taiwan at 10.83%, India at 8.97%, Brazil at 7.65%, and the remaining countries at 28.63%. Financials, information technology, and consumer discretionary companies were the top three sectors in the index.

The MSCI Emerging Markets Index is reviewed four times a year—February, May, August, and November. According to MSCI, the reviews limit undue turnover and are meant to reflect change in the underlying equity markets. Rebalancing of the index occurs during both the May and November reviews. Both the mid and large cap cutoff points are recalculated during these periods.

Morgan Stanley in the News

Morgan Stanley is no stranger to setting benchmarks. In 2018, the company reported a second quarter growth of 39% from just a year prior, pushing their profits up to $2.4 billion, a larger growth than most of their rivals experienced.

After many years of restructuring the bank, Morgan Stanley celebrated performance level successes across almost all of their business channels. The company experienced a setback earlier in the year when the Federal Reserve completed a stress test on the bank and limited its capital returns to back to the levels from the prior year. Despite this, the bank’s shares did well. At a time when many worry about changes coming from the Federal Reserve Bank and uncertainty surrounding the future of U.S. foreign trades, Morgan Stanley was able to move forward.