Low Performers: A Look At 30 Years Of Emerging Market Equities

The world’s flagship emerging market stock index will celebrate its 30th birthday at the end of the year, but the celebrations may be muted in Malaysia and Greece.

- Steve Johnson

During the life of the MSCI EM index Malaysia has managed to take its index weight from a mighty 33.8% to a lowly 2.3%, as the first chart shows.

Greece, on the other hand, has managed to hand any loyal investors a 39% loss in total return, nominal dollar terms (a loss of 71% in real inflation-adjusted terms), even as Mexico has rewarded its backers with a 95-fold nominal return (or 45 times in real terms), Argentina a 78-fold return (37 times real) and Brazil 60-fold nominal (28 times real).

Overall, since 1 January 1988, the EM index has generated a decent 25-fold nominal return, 11.6-fold real, comfortably outstripping the 10-fold nominal return (4.6 real) of the developed market MSCI World alternative.

The MSCI EM index of 1988 was a very different beast from that of today, though. It boasted just 10 countries, including Portugal and Greece, which have spent much of the intervening period as developed markets, although Greece has once again slipped back to “emerging” status.

It included four Latin American countries, three from Southeast Asia and Jordan, since relegated to frontier status. Its lack of geographical reach was a reflection of its times.

With the Berlin Wall still intact, eastern Europe was bereft of stock exchanges, no mainland Chinese companies were listed on the Hong Kong exchange (so no HK H shares, now the index’s largest constituent), South Africa was viewed by many as off limits because of apartheid, and India, South Korea and Taiwan “were in effect cut off to foreign investors”, says Daniel Salter, head of EM equity strategy at Renaissance Capital, an emerging market-focused investment bank.

“The asset class, at sub-1% of global equities, was an easy one to ignore. Today, EM represents 11% of global equities,” Salter adds.