MSCI Emerging Markets

What is the MSCI Emerging Markets?

The MSCI Emerging Markets Index (EM) is a stock market index that tracks the performance of large and mid-sized companies in approximately 25 emerging market countries.

This page explains what the index tracks and why it matters to investors seeking exposure to high-growth economies.

The MSCI Emerging Markets includes countries like China, India, Brazil, Russia, Mexico, South Africa, and others that are experiencing rapid economic growth and industrialization. The index includes approximately 1,300 companies and covers approximately 13% of the world’s total market capitalization. Unlike developed markets, emerging markets offer higher growth potential but also higher volatility.

Emerging market exposureCountries with developing economies and rapid industrialization, typically offering higher growth potential but also higher risk than developed markets. allows investors to participate in the world’s fastest-growing regions and benefit from economic development.

The MSCI Emerging Markets is widely used by international investors to diversify beyond developed Western markets and gain exposure to demographic growth and industrialization trends. Higher growth ratesThe rate at which a country's economy expands, typically measured annually as a percentage increase in total economic output. in emerging markets have historically delivered strong long-term returns, though with significant volatility.

Why Should You Care About MSCI Emerging Markets?

The MSCI Emerging Markets is important for three main reasons. First, it offers exposure to global economic growth: emerging market countries represent approximately 60% of the world’s population and are growing faster than developed economies. Second, it provides portfolio diversification: emerging markets often move differently than developed markets, reducing overall portfolio risk. Third, it captures demographic tailwinds: younger populations in emerging markets drive consumption growth, productivity gains, and technological adoption for decades to come.

The index serves as a benchmark for international investors and emerging market-focused funds seeking exposure beyond U.S., European, and Japanese markets.

How Does the MSCI Emerging Markets Work?

Regional and Country Composition

The MSCI Emerging Markets includes 25 countries across five major regions: China and Taiwan (~33%), India (~9%), Brazil (~8%), Russia and South Africa (~4% each), and numerous other emerging markets. The index uses market-cap weighting, meaning larger companies and larger countries have more influence on the index.

Why It Matters

China and India alone represent over 40% of the index, making them dominant factors in overall performance.

The index includes large-cap companies (approximately 85% weight) and mid-cap companies (approximately 15% weight) across all sectors—financials, technology, energy, consumer goods, and industrials. Companies must meet liquidity and free-float requirements to be included, ensuring the index tracks stocks that are actively traded internationally.

Why is MSCI Emerging Markets So Popular?

The MSCI Emerging Markets has become popular because it offers direct exposure to the world’s fastest-growing economies without requiring investors to pick individual countries or companies. From 2010 to 2025, the MSCI Emerging Markets delivered approximately 6-8% average annual returns (lower than developed markets during this period due to commodity cycles and China’s slowdown). However, emerging markets have historically delivered strong returns during economic expansion phases.

Investors use the MSCI Emerging Markets to gain exposure to demographic growth, technological adoption, and rising consumer spending in countries like China, India, and Brazil. The index is also easily accessible through numerous mutual fundsA professionally managed fund that pools money from many investors to buy diversified stocks, bonds, or other securities. and ETFs with low fees.

It is a common benchmark for international and global portfolio diversification. It helps investors understand how developing economies are performing relative to developed markets.

Consider both the growth potential and volatility when deciding if MSCI Emerging Markets fits your investment strategy. Geographic diversificationSpreading investments across different regions, countries, and sectors to reduce risk. through emerging markets enhances portfolio resilience.

China’s Dominance: Why It Matters

China represents approximately 25-33% of the MSCI Emerging Markets Index, making Chinese company performance critical to overall index returns. This heavy concentration means Chinese economic policy, regulatory decisions, and technology company valuations significantly influence the entire index.

The top holdings include companies like Tencent, Alibaba, and China Mobile. A slowdown in China’s economy or a regulatory crackdown on technology companies can significantly reduce MSCI Emerging Markets returns. Conversely, when China performs well, the index can significantly outperform.

Why It Matters

Understanding Chinese economic trends is essential to understanding MSCI Emerging Markets performance.

Investors must balance exposure to China’s growth potential with the political and regulatory risks inherent in Chinese markets.

How to Access MSCI Emerging Markets

You cannot invest directly in the MSCI Emerging Markets index itself—it’s a mathematical calculation tracking thousands of companies across dozens of countries.

The most popular ways to invest in MSCI Emerging Markets are:

– IEMG ETF: Most liquid emerging markets ETF with 0.08% expense ratio
– VWO ETF: Vanguard’s emerging markets option with low costs
– Emerging market mutual funds: Actively managed funds focusing on specific emerging regions
– MSCI EM Index Funds: Direct index tracking through fund families

Choose based on your risk tolerance, time horizon, and desire for active versus passive management.

How to Compare and Evaluate

Check performance over multiple time ranges. Compare 1-year, 5-year, and 10-year returns to understand both cyclical performance and long-term trends. Emerging markets can underperform for years before entering strong growth phases.

Compare with developed market indexes and consider currency impact. If the MSCI Emerging Markets returned 15% but your home currency appreciated 10% against the dollar, your local currency return was only 5%. Use this comparison to evaluate true returns.

Always evaluate emerging market performance in the context of commodity cycles and global economic conditions.

Monitor Chinese regulatory developments and Indian economic growth rates—these are the key drivers of overall index performance.

Key Takeaways for Investors

The MSCI Emerging Markets Index captures the performance of large and mid-cap companies in approximately 25 rapidly developing countries, with heavy concentration in China and India. Its market-cap weighting means larger companies and larger countries dominate returns. Over long periods, emerging market investors have historically enjoyed potential for strong growth, but with higher volatility than developed market indexes.

Use the MSCI Emerging Markets to understand global growth opportunities and diversify beyond developed Western markets, but always remember: higher growth potential comes with higher risk. While it’s an excellent diversification holding for global portfolios, it should be evaluated alongside your risk tolerance and time horizon.