Evolving Country Concentration in Emerging Market Indices – Opportunities for Investors
In this Insight we address the changes and concentration of the MSCI Emerging Market Index over the last decade and the implication for investors of the growing size of China within these Indices.
The last 10 years have seen some significant changes to the emerging market investment landscape, both in terms of the shifting geographical bias and the types of investors that make up the shareholder bases of many emerging market companies.
The first paradigm shift which has affected the equity universe globally has been the move by international investors into passively manage funds. In the year 2000, passive holdings accounted for just 1% of the foreign money in emerging markets (this is for publicly available funds). This rose to around 10% by 2006 and almost 37% today, worth over USD 800bn.1 The size and weight of passive money is crucial to the evolution of emerging markets Indices as this money is obliged to automatically follow any changes or reorganisations.
Secondly, the shape of the emerging market Indices has altered dramatically over the last few years in terms of regional weightings and there have been some very large changes in country weights.
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