Emerging economies are very heterogeneous. However, they often share one thing in common: a lot of potential for economic growth. For those who wanttoinvest in emerging markets, below, we analyze the most important world stock indices.
- MSCI Emerging Markets
- MSCI Emerging Markets IMI
- MSCI Emerging Markets ex China
- S&P Emerging BMI
- S&P Emerging Ex-China BMI
- FTSE Emerging
- FTSE EPRA Nareit Emerging
Emerging countries are very heterogeneous. We are talking about very diverse economies and totally different demographic profiles.
On the one hand, there are emerging markets that are highly dependent on the export of natural resources and energy, such as Brazil or Saudi Arabia. On the other hand, there are countries that are leaders in manufactured products, such as China, Taiwan or South Korea. And there are also countries in the middle of both extremes, such as Mexico.
Similarly, some countries have very young populations, such as India or Malaysia. And other countries have an older demographic profile, such as China, the Czech Republic or Hungary.
However, all of these countries tend to have a lot of growth potential. And while high rates of economic growth are no guarantee for extraordinary returns for stock market investors, the two things can go hand in hand.
One of the negative aspects of investing in emerging countries is that they tend to carry a higher level of risk than developed countries. Precisely for this reason, it is worth taking diversification into account when deploying our capital in the emerging market space. And one of the best ways to invest in emerging countries in a diversified way is to do so through a global ETF of emerging countries.
So that you are able to select the most suitable ETF for you, we will analyze the most important global stock indices for emerging countries.
MSCI Emerging Markets
One of the most famous global stock indices of emerging countries is the MSCI Emerging Markets. Calculated by MSCI, it is made up of stocks from about 25 countries. Although it is worth bearing in mind that the list of countries varies over time.
For example, Russia ceased to be part of the index in 2022 when it was excluded from it. Similarly, Israel left the index a few years ago when it was reclassified as a developed country. And something similar could happen with South Korea, which is still considered an emerging economy within the MSCI indices.
In total, some 1,400 companies are part of the MSCI Emerging Markets index. And they are weighted based on their market capitalization adjusted for free float.
Both in the number of stocks and in the percentage of market value, China is the most important country within the MSCI Emerging Markets, with an allocation of around 30%. Other important countries include South Korea, Taiwan, India and Brazil.
Additional details can be found on the index’s official website.
MSCI Emerging Markets IMI
Another index calculated by MSCI is the MSCI Emerging Markets IMI. It is built with similar criteria to the index we have just discussed. This means it contains stocks from the same countries.
The main difference between both indices is the minimum size and level of liquidity that a company must have in order to be part of the index. In this sense, the MSCI Emerging Markets IMI has lower thresholds, leading to a greater number of companies in the index, many of them small caps.
As a result, some 3,300 stocks are part of the index. As with the MSCI Emerging Markets, China is the dominant country within it, both in number of companies and in terms of market capitalization.
More details are available on the MSCI website.
MSCI Emerging Markets ex China
Due to the geopolitical risks related to China, many investors are reluctant to invest their money in the country. And because roughly 30% of the market capitalization of the MSCI Emerging Markets is made up of Chinese companies, an ETF tracking that index can pose considerable risk.
For that reason, MSCI calculates a version of the index that excludes all Chinese companies. This is the MSCI Emerging Markets ex China. It should be noted that, leaving aside the exclusion of Chinese stocks, this index includes all other MSCI Emerging Markets constituents.
As a result, the weighting of the rest of the companies is larger. And the same is true for countries. Thus, the weighting of countries such as Taiwan, South Korea and India is around 20% for each.
The total number of companies falls to 700, indicating that about half of MSCI Emerging Markets stocks are Chinese. For additional details about the MSCI Emerging Markets ex China, you can visit the MSCI website.
S&P Emerging BMI
S&P Dow Jones also calculates global stock indices for emerging countries. The most inclusive of all is the S&P Emerging BMI. Within it, we can find about 5,000 companies, including many from China. So small-cap companies are well represented.
However, weighting is still carried out by market capitalization adjusted for free float.
One difference to highlight relative to MSCI’s indices is that the S&P Emerging BMI does not include South Korean or Polish companies. This is because S&P Dow Jones includes them in its stock indices for developed countries.
For that reason, China accounts for about one-third of the index’s value. And countries like Taiwan, India and Brazil are also very important. If you want to find additional details about it, you can visit the S&P Global website.
S&P Emerging Ex-China BMI
S&P calculates another version of its emerging-country stock index that does not include China. This is the S&P Emerging Ex-China BMI. The rest of the companies are exactly the same as in the S&P Emerging BMI.
Thus, it has about 3,000 stocks. As it could not be otherwise, regions such as Taiwan, India, Brazil and even Saudi Arabia represent a very significant percentage of the market value of the S&P Emerging Ex-China BMI.
If you want to read more information about this index, you will find it under this link.
As for FTSE Russell, its main stock index for emerging markets is the FTSE Emerging. As in the case of the S&P indices, South Korea and Poland are not included here.
In total, the FTSE Emerging has just over 2,000 stocks. Many of them are from China, which is the country with the highest weighting.
Some of the most important corporations within the index include Alibaba, Tencent, TSMC and Brazil’s Petrobras. The technology, financial and natural resources sectors are the most important ones.
Here is the link to the FTSE Russell website in case you want to find additional information.
FTSE EPRA Nareit Emerging
Finally, for those investors who are interested in generating regular income through real estate investing, we will take a look at the FTSE EPRA Nareit Emerging Index.
It is composed of real estate companies whose business is about buying real estate with the aim of generating regular cash flow and capital gains. Just over 100 companies are included in the index.
China is the most important country within the FTSE EPRA Nareit Developing, other countries are also strongly represented, such as Mexico, the Philippines, Thailand and India.
The following link will allow you to download information about this index directly from the FTSE Russell website.
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And if you would like to learn about the most important stock indexes of the largest emerging country, check out this link:
Top 10 Stock Market Indices in China