If you want to now equity market performance of INDIA, you look at NIFTY, if you want to look at CHINA its Shanghai Stock exchange. If USA you look at NASDAQ. For every nation there is an INDEX that measures the stock market performance.
If I ask you, how can you measure the performance of many developing nations together, What's your answer?
That's what MSCI Emerging market do. The Index consist of 26 developing countries across globe like Argentina, Brazil, Columbia, Egypt, India, Pakistan, Indonesia, Korea etc. etc.
In this blog we will understand
1. What is MSCI ?
2. What is MSCI Emerging Market INDEX ?
3. Constituents of MSCI Index
4. How MSCI affects Indian companies
1. What's MSCI First?
MSCI stands for Morgan Stanley Capital International. It is a Investment Research firm that provides stock Indexes & analytical services to Investors. Wait! What do Indexes mean, Indices are meant for tracking purposes like if you want to track India’s performance you can check is Nifty 50. An Index is a group of companies. If you want to know more about Indices you can check our Nifty 50 video. The link is here - https://www.youtube.com/watch?v=T2_Irf-WqdY&t=2s
MSCI was formed in 1986 and they had lot of Indexes for International market. MSCI has more than 1,00,000 Stock Indexes. Yes , that’s a big number however not all are popular. The popular ones are -
· MSCI Emerging Market Index
· MSCI Frontier Market Index
· MSCI All Country Index
· MSCI EAFE Index
For each of the above the geography and purpose is different.
2. What is MSCI Emerging Market Index -
As I said in the beginning MSCI Index is made from 26 emerging nations. This Index was formed in 1988. Since there are 26 different developing nations therefore weight of each nation is different.
39% weight comes from China
13% comes from Taiwan companies
10% from South Korea
9% from India
58% from Brazil
Top 5 nations contribute 78% of MSCI Emerging Index
3. Constituents in MSCI Emerging Index
The MSCI Emerging Index has total 1404 companies in these 26 nations. Let’s look into the top 10 companies and Indian companies present in it. The top ten holding are as on date 25 April 2020 are bigger companies like Alibaba,Tencent, Taiwan semiconductor etc
The 7th place is of Reliance Industries. Its weight is 1% in the MSCI Emerging Index. Other companies included L&T, Bajaj Finance, Nestle, Divis lab etc.
Also, Index is not a fixed one, meaning it is reviewed semi annually in May & November and they re-balance the Index. Re-balancing means changing up the weights of the companies & countries so that Index shows latest picture.
4. Why MSCI is popular and its importance?
MSCI is also used as benchmark for companies of any emerging market. For the global investors it acts as a benchmark and a way to compare different emerging markets, for eg whether Nifty was able to beat the MSCI EM Index, whether China was able to beat the EM Index.
Also, if an investor wants to look onto opportunities present across globe, it’s difficult for a person to do that for it’s own and so they follow such indexes for filtering out stocks, looking onto what’s new included in it, what’s excluded from the index. That’s how money flows. So, for eg if I say that there can be 0.5% weight increment of India in MSCI Index this can lead inflow of billions into these stocks
That’s all about MSCI Index
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