Yet More Changes for Emerging-Markets Indexes

Emerging market investing is being shaken up this year with changes to the way China, Saudi Arabia and South Korea are represented in indices.

Daniel Sotiroff 23.05.2019
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The increased inclusion of China A-shares, Saudi Arabia's newfound acceptance, and South Korea's dual identity are driving some notable changes to index-tracking emerging markets funds.

China's ascendance in emerging markets stock indices over the past decade is indisputable. In March 2009, the country represented 12% of the MSCI Emerging Markets Index. Fast forward 10 years, and that had swelled to just under 33%. The numbers are similar for emerging markets benchmarks from other providers like FTSE Russell and S&P Dow Jones Indices. Strong returns from the Chinese stock market relative to other developing markets drove most of that growth.

More recently, emerging markets indices have expanded their reach to include stocks from the China A-share market, which has further increased China's share of the emerging markets pie. Prior to May 2018, China A-shares, or renminbi-denominated shares that traded locally on the Shenzhen and Shanghai exchanges, were excluded from the MSCI Emerging Markets Index and other emerging markets benchmarks. Index providers shied away from including them because they were difficult to trade. The Chinese government restricted access to a select set of institutional investors and imposed quotas that further constrained the investability of these stocks.

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Daniel Sotiroff  Daniel Sotiroff is an Analyst, Passive Strategies Research, for Morningstar.

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