The evolution of emerging markets

The complexion of emerging-markets stocks has changed dramatically over the past 10 years and will continue to do so.

Ben Johnson, CFA 19 December, 2017 | 6:00PM

Per MSCI, emerging-markets stocks made up about 11.6% of the global stock market (using the MSCI All-Country World Index as a proxy) as of the end of September. Thirty years ago, these stocks represented less than 1% of the world's investable equity market capitalization. These markets are dynamic by definition. They have changed dramatically in the past three decades, and the pace of change has only accelerated in recent years.

The MSCI Emerging Markets Index was launched on Jan. 1, 2001. From its inception through the end of September, the index's annualized return amounted to 9.89%, versus 4.99% for its developed-markets counterpart, the MSCI World Index (returns are presented in U.S. dollars). Though these headline performance figures are compelling, they belie the gut-wrenching volatility that has characterized this span. During this period, the emerging-markets index's standard deviation of monthly returns and maximum drawdown were 22.07% and 61.59%, respectively. The comparable figures for the MSCI World Index were 15.19% and 54.03%, respectively. Emerging markets' path to greater absolute returns has been a winding one.

Recent years have been particularly taxing for investors in emerging-markets stocks. From the time that the emerging-markets index's cumulative performance peaked relative to developed markets in October 2010 (see Exhibit 1) through the end of 2016, the MSCI Emerging Markets Index fell 1.1% on an annualized basis, while the MSCI World Index generated annualized gains of 8.74%.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Alibaba Group Holding Ltd ADR212.59 USD0.00
Apple Inc313.05 USD0.00
Naspers Ltd ADR35.25 USD0.00
Samsung Electronics Co Ltd GDR 144A0.00 USD0.00
Taiwan Semiconductor Manufacturing Co Ltd ADR55.59 USD0.00
Tencent Holdings Ltd ADR51.47 USD0.00

About Author

Ben Johnson, CFA

Ben Johnson, CFA  Ben Johnson, CFA, is director of global ETF research for Morningstar and editor of Morningstar ETFInvestor, a monthly newsletter.