Introduction : MSCI Emerging Markets Index
Morgan Stanley Capital International (MSCI), is owned by the multinational investment and financial services company Morgan Stanley. The MSCI Emerging Markets Investable Market Index (EM IMI) is a comprehensive index that includes large, mid, and small-cap stocks from 24 emerging market countries. With a total of 3,355 constituents, this index broadly represents about 85% of the free float-adjusted market capitalization in each of the included countries. MSCI IMI consists of 3,355 stocks at present.
The main MSCI EM Index (standard index) covers the large and mid cap space while MSCI EM IMI includes a more comprehensive range, encompassing large, mid and small cap stocks.
Morgan Stanley reported that India has now surpassed China to become the largest weighting in the MSCI Emerging Market Investable Market Index (EM IMI). For the first time, India has surpassed China in terms of weight in the index. The weight of India in MSCI EM IMI stood at 22.27 per cent compared to 21.58 per cent of China. This significant shift in the market landscape took place earlier this week, with India’s weight in the Emerging Markets index edging closer to potentially becoming the largest.
| Weightage in MSCI EM % | IMI | Standard |
| India | 22.27 | 20.79 |
| China | 21.58 | 23.98 |
| Taiwan | 18.31 | 11.78 |
| South Korea | 11.22 | 11.23 |
| Brazil | 5.06 | 5.32 |
Source: MSCI, 4 Sept 24
The MSCI Emerging Markets (EM) Index, a crucial benchmark for global investors, has seen a noteworthy shift in its composition. This marks a significant milestone in the evolving landscape of emerging markets. This shift comes despite China’s market capitalization of $8.14 trillion being over 60% greater than India’ $5.03 trillion.
India Tops MSCI EM: Reforms, Robust Growth & $4B+ Inflows
Several factors have contributed to India becoming the top weight in the MSCI EM Index. Firstly, the Indian stock market has exhibited strong performance relative to its peers. Secondly, regulatory reforms and investor-friendly policies have boosted investor confidence in India. These initiatives have attracted substantial foreign capital inflows, further propelling India’s prominence in the index. Indian equities could witness inflows of about $4-4.5 billion. MSCI has recently added 7 Indian stocks to its standard Index while cutting 60 Chinese stocks from the index.
India Takes Charge: New EM Strategies
India’s ascension to the top position in the MSCI EM Index has significant implications for global investors. With India now holding a larger share, portfolio managers may need to re-evaluate their emerging market strategies. A higher weight for India means increased exposure, potentially translating into greater returns, but also introducing unique market risks.
India’s growing strength in the MSCI EM Index shows that India is pursuing more stable policies and robust growth such that India is attracting more foreign money and drawing attention of global investors. This shift emphasizes how improvements in governance and economic reforms can boost a country’s credibility in the global market. As India grabs a larger share of the index, investors may see more opportunities for profit, even though every investment carries risks. In contrast, China faces challenges that have made some investors cautious, despite its large market size. Overall, this change is a clear sign that emerging markets are dynamic and can quickly reshape global economic power.
China vs India
China, which has long held the top spot in the MSCI EM Index, continues to be a major player in the global market. However, recent economic challenges and regulatory crackdowns have affected investor sentiment. In contrast, India’s more stable and reform-oriented environment has made it a more attractive investment destination. Chinese markets have struggled on the back of economic headwinds in China, while Indian markets have benefitted from its own strong macroeconomic fundamentals and robust performance by Indian companies.
Conclusion
India’s rise to the top weight in the MSCI EM Index is a testament to its growing influence in the global financial markets. As emerging markets continue to evolve, investors will be closely monitoring how this shift impacts their portfolios and the broader economic landscape.
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