Changes in emerging market indices

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 29 April, 2019 | 5:00PM

Note: This article is part of Morningstar Canada's Emerging Markets Week Special Report

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  Daniel Sotiroff is a manager research analyst for Morningstar.