FTSE Emerging Markets

FTSE Emerging Markets
Name	FTSE Emerging Markets
Operator	FTSE Russell
Introduced	2003
Exchanges	London Stock Exchange
Constituents	1,200+ (varies)
Capitalization	Free-float adjusted
Currency	US dollar and local currencies
Website	FTSE Russell

FTSE Emerging Markets

The FTSE Emerging Markets index is a market-capitalization weighted benchmark maintained by FTSE Russell to track publicly traded companies in designated emerging market jurisdictions such as Brazil, India, China, South Africa, and Mexico. The index serves investors, asset managers, and sovereign funds including BlackRock, Vanguard Group, State Street Global Advisors, Norges Bank Investment Management, and Government Pension Investment Fund (Japan) for passive and active strategies. Its constituents, methodology rules, and country classifications interact with regulators like the Financial Conduct Authority and market operators including the New York Stock Exchange, Nasdaq, B3 (stock exchange), Bombay Stock Exchange, and Shanghai Stock Exchange.

Overview

FTSE Emerging Markets is part of the FTSE Global Equity Index Series produced by FTSE Russell, an index provider within the London Stock Exchange Group. The series complements other benchmarks such as the FTSE 100 and the FTSE All-World Index and aligns with regional families like the FTSE Asia Pacific Index and the FTSE Latin America Index. Classification criteria derive from market accessibility studies, reflecting inputs from central securities depositories like DTCC, custodians like BNY Mellon, and sovereign entities such as the People's Bank of China and the Reserve Bank of India.

Index Methodology

The index uses free-float adjusted market capitalization and liquidity screens similar to methodologies employed by MSCI and S&P Dow Jones Indices. Constituency decisions reference corporate actions filed with regulators including the Securities and Exchange Commission and the Securities and Exchange Board of India. Eligibility requires primary listing on an eligible exchange such as the Johannesburg Stock Exchange or Borsa Mexicana de Valores and compliance with disclosure norms influenced by standards from IOSCO and reporting frameworks like IFRS or US GAAP. Quarterly and semi-annual reviews incorporate data from custodians such as Northern Trust and State Street Corporation.

Constituents and Weighting

The index typically includes several hundred to over a thousand constituents drawn from emerging market nations such as Turkey, Russia (subject to eligibility review), Indonesia, Malaysia, Thailand, Philippines, Poland, Chile, Colombia, and Peru. Large-cap names historically represented include Alibaba Group, Tencent Holdings, Reliance Industries, Petrobras, Vale S.A., Naspers, Samsung Electronics (when classified), and Taiwan Semiconductor Manufacturing Company (subject to regional mapping). Weighting is free-float market-cap based, with caps applied to single-stock and country concentrations via rules akin to those imposed by European Central Bank stress frameworks and portfolio limits observed by CalPERS and Canada Pension Plan Investment Board.

Performance and Historical Returns

Performance of the index reflects commodity cycles, currency movements, and global capital flows influenced by actions from institutions such as the Federal Reserve, European Central Bank, Bank of Japan, and People's Bank of China. Episodes like the 2013 Taper Tantrum, the 2008 Global Financial Crisis, the 2020 COVID-19 pandemic, and the 2015 Chinese stock market turbulence materially affected returns. Long-term historical returns show periods of outperformance versus developed-market benchmarks such as the S&P 500 and the FTSE Developed Index, driven by economic expansion in nations like China and India and by commodity booms benefiting Brazil and Russia.

Regional and Country Coverage

The index spans regions covered by multilateral institutions such as the World Bank, International Monetary Fund, and Asian Development Bank, with constituent countries periodically reclassified following consultations with market participants including JP Morgan, Goldman Sachs, Morgan Stanley, and local regulators. Country inclusion can hinge on reforms in market infrastructure like central depository modernization in Argentina or capital controls in Venezuela, with special consideration for extraordinary events such as sanctions imposed by bodies like the United Nations or European Union.

Investment Products and Usage

A broad array of investment products track or reference the index, including exchange-traded funds managed by iShares (BlackRock), Vanguard Group, State Street Global Advisors, and active funds from asset managers like Fidelity Investments and Schroders. Institutional investors use the benchmark for asset allocation by sovereign wealth funds such as Abu Dhabi Investment Authority and Qatar Investment Authority, and for risk budgeting at hedge funds including Bridgewater Associates and Two Sigma. Derivative products include futures and options listed on venues like CME Group and over-the-counter swaps traded with dealers such as Credit Suisse and J.P. Morgan.

Criticisms and Limitations

Critics point to country classification disputes involving China (A-shares), treatment of frontier markets like Nigeria and Kenya, and the index's sensitivity to large-cap concentration in firms such as Tencent or state-controlled enterprises like PetroChina. Others highlight liquidity and custody challenges in markets overseen by entities like the Central Bank of Russia or the People's Bank of China, and governance concerns flagged by investors including Hermes Investment Management and Amundi. Comparisons with alternative benchmarks from MSCI and S&P Global emphasize methodological differences affecting tracking error for passive products and capacity constraints for index-linked strategies.

Category:Stock market indices