MSCI Emerging Markets

MSCI Emerging Markets
Name	MSCI Emerging Markets
Type	Equity index
Founded	1988 (MSCI indexes origin)
Operator	MSCI Inc.
Market cap	Market-cap weighted
Constituents	~1,400 (varies)
Related	MSCI World, MSCI ACWI, MSCI Frontier Markets

MSCI Emerging Markets

MSCI Emerging Markets is a benchmark equity index widely used by institutional investors, asset managers, pension funds, sovereign wealth funds and exchange authorities to measure and access equity performance in developing markets. The index is produced by MSCI Inc., is market-capitalization weighted and serves as a reference for passive funds, active strategies, exchange-traded funds, sovereign wealth allocations and regulatory capital models. Major financial centers such as New York City, London, Hong Kong, Tokyo and Frankfurt host markets and intermediaries that trade instruments linked to the index.

Overview

MSCI Emerging Markets is designed to capture large- and mid-cap representation across emerging market countries and is used by BlackRock, Vanguard Group, State Street Global Advisors, Goldman Sachs, J.P. Morgan Asset Management and other global asset managers for benchmarking and product construction. The index influences listings on New York Stock Exchange, NASDAQ, London Stock Exchange, Hong Kong Stock Exchange and Shanghai Stock Exchange through ETFs and mutual funds. Regulators such as U.S. Securities and Exchange Commission, European Securities and Markets Authority and central banks often reference allocations tied to the index in policy and reporting. Ratings agencies including Moody's Investors Service, Standard & Poor's, and Fitch Ratings monitor market access issues that affect index composition, while exchanges like BSE (India), BM&FBOVESPA (B3), Johannesburg Stock Exchange and Korea Exchange provide primary listings for constituents.

History and development

MSCI Inc., founded as part of Barra, Inc. and later spun out from Morgan Stanley, developed a family of indexes used by Pension Protection Fund (UK), California Public Employees’ Retirement System, Government Pension Fund of Norway and other large investors. The evolution of the Emerging Markets index reflects major geopolitical and market events: the Asian Financial Crisis influenced country eligibility, the Global Financial Crisis of 2008–2009 altered weightings, and the inclusion of China A-shares followed bilateral market access measures and consultations with Shanghai Stock Exchange and Shenzhen Stock Exchange. Index adjustments responded to reforms in Brazil, India, Russia, South Africa, Turkey, Mexico, Poland and Indonesia, and to corporate governance developments influenced by institutions like World Bank and International Monetary Fund. Significant milestones include phased market inclusions coordinated with national regulators and market operators.

Composition and methodology

Constituents are selected from national exchanges across countries classified as emerging by MSCI policy committees; notable markets include China, India, South Korea, Taiwan, Brazil, South Africa, Mexico, Russia, Indonesia, Malaysia, Thailand, Philippines and Poland. The index applies free-float market-cap weighting, liquidity screens, investability screens and nationality-based classification guided by consultations with Securities and Exchange Board of India, China Securities Regulatory Commission, Brazilian Securities and Exchange Commission (CVM) and other authorities. Methodological components reference market accessibility, foreign ownership limits, settlement rules and depositary receipt programs such as American Depositary Receipt and Global Depositary Receipt. Governance and maintenance involve committees with representation from global custodians like Bank of New York Mellon, Citigroup, HSBC, JPMorgan Chase & Co. and State Street Corporation.

Index variants and related products

Variants include the MSCI Emerging Markets Small Cap, MSCI Emerging Markets IMI, MSCI Emerging Markets Value, MSCI Emerging Markets Growth and regional sub-indexes for Latin America, Emerging Europe, Middle East & Africa and Asia Pacific. Products tracking the index include ETFs by iShares, Vanguard, SPDR, First Trust, Invesco and structured products from Goldman Sachs and Morgan Stanley. Benchmarks and complements include MSCI World, MSCI ACWI, FTSE Emerging Markets, S&P Emerging BMI and fixed-income counterparts from J.P. Morgan Emerging Market Bond Index providers. Futures, options and swaps referencing the index trade via venues connected to CME Group, ICE, Eurex and over-the-counter desks at global banks.

Performance and impact on markets

The index has driven significant cross-border capital flows, affecting liquidity, valuation, corporate governance and currency markets in constituent countries. Inclusion or exclusion decisions have produced measurable inflows from passive vehicles, influencing share prices of companies such as major constituents listed on Shanghai Stock Exchange, Shenzhen Stock Exchange, Bombay Stock Exchange, B3 (Brazil), KOSPI and Johannesburg Stock Exchange. Asset allocators including Norwegian Oil Fund, CalPERS, Japan Post Bank and sovereign wealth funds have adjusted emerging allocations based on the index, with macro impacts observable in sovereign spreads monitored by Bank for International Settlements and International Monetary Fund. Empirical studies by academics affiliated with Harvard University, London School of Economics, Stanford University, University of Chicago and Yale University analyze performance attribution, beta exposure and factor tilts versus benchmarks like S&P 500 and FTSE 100.

Criticisms and controversies

Criticisms focus on country classification decisions, market accessibility assessments, concentration risk and the index's influence on capital flows. Debates around the treatment of China's A-share inclusion, the classification of South Korea and Taiwan, and the representation of Russia amid sanctions illustrate geopolitical tensions involving institutions like United Nations and national governments. Academics and market participants from Columbia Business School, Wharton School, MIT Sloan School of Management and INSEAD have questioned free-float adjustments, liquidity thresholds and the procyclicality of passive inflows. Controversies have involved discussions with regulators including People's Bank of China, Reserve Bank of India and Central Bank of Brazil over capital controls and foreign investor treatment, and litigation or public statements from asset managers such as BlackRock and Vanguard Group regarding implementation timing.

Category:Financial indexes