Friday, March 27, 2009

Historical Returns for the MSCI Emerging Markets Index

The Morgan Stanley Capital International (MSCI) Emerging Markets (EM) Index is one of the most widely-followed emerging markets equity indices. In the investment community, "Emerging Markets" typically refers to a social or business activity of nations that are in the process of rapid growth and industrialization.

There are currently 24 Emerging Markets tracked by the MSCI EM Index: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey. Of the tracked Emerging Markets, Brazil, Russia, India, and China (the "BRIC" countries) are arguably the markets with the greatest long-term growth potential.

The chart below lists annual returns for the MSCI EM Index between 1989 and 2008. Returns for the MSCI EM Index from 1993-1998 represent gross dividend reinvested returns, and returns from 1999-2008 represent net dividend reinvested return.* I acquired this data from a .pdf of returns for emerging markets that I found on the website for the Lazard Asset Management investment firm.

As shown, the MSCI EM Index has soared during some years and plummeted during others. In 1993, for example, the MSCI EM Index soared 74.83%, and the five-year annualized return between calendar years 2003-2007 was a whopping 37.02%. However, the MSCI EM Index has also occasionally posted abysmal returns. In 2008 the MSCI EM plummeted 53.33%, and the five-year annualized return of the MSCI EM Index between calendar years 1994-1998 was a pathetic -9.27%.

Despite the incredible volatility of annual returns, the overall annualized return of the MSCI EM Index between 1989 and 2008 was a decent 9.98%, and greatly exceeds the annualized return of 8.42% the S&P 500 Index over the same time period.

Emerging Markets can be an important portion of investment portfolio of any stock market investor. The economies of Emerging Markets typically grow much faster than those of Developed Markets, such as the United States. The performance of equity markets of such countries often has a strong correlation with the overall economic growth of such countries. Moreover, as I have discussed previously, the U.S. Dollar will likely continue to weaken in the future as the country becomes more and more dependent upon foreign investment.

However, given its inherent volatility, many investment advisers recommend limiting Emerging Markets to no more than 10-15% of an aggressive investor's portfolio.

* The performance data shown is slightly different than the performance data I saw for the MSCI EM Index at Index Universe, and I am not sure of the reason for the discrepancy. 
** I have updated this chart to include returns for 2012 in another post.


SLEY Capital Advisors L.P. said...

Great Post, I would like to add that even though there are over 20 emerging markets tracked by this index, one country, BRAZIL, accounts for nearly 25%

Anonymous said...

I think the reason for the "slight" difference in numbers from what you post and what you find on the MSCI and S&P websites is the number you show includes the dividends. The index numbers from the other sites is purely based on the averages of the stocks within the indicies without taking into consideration the dividends those stocks have paid during the year.

If my assumption is true, then your numbers should be slightly higher than those you see on the MSCI and S&P sites.

Nice data on your site, by the way. Thanks for posting it.