Friday, January 29, 2010

Historical Returns for the MSCI Emerging Markets Index (1989-2009)

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. In March 2009, I discussed annual returns between 1989 and 2008 for the MSCI EM Index. I have updated the information in the current post and in the chart shown below (click on the image for a larger view) to include results for the year 2009.

The chart below lists annual returns for the MSCI EM Index in terms of U.S. Dollars between 1989 and 2008. Returns for the MSCI EM Index from 1993-1998 represent gross dividend reinvested returns, and returns from 1999-2009 represent net dividend reinvested return.*

As shown in the chart below, the MSCI EM Index is extremely volatile. During the 21 years for which I have data (i.e., 1989-2009), the MSCI EM Index lost value during 9 calendar years and gained value in 12 other calendar years. The worst returns came during 2008 when the Index plumetted 53.33% and the best annual gains came during 2009 when the Index soared 78.51%. However, despite the massive return during 2009, the Index finished 2009 at a level 16.68% below where it was at the start of 2008.

The annualized returns were 15.51% for the 5-year period, 9.78% for the 10-year period, and 7.14% for the 15-year period ending in 2009. Annualized returns between 1989 and 2009 were 12.55% and the Index had a total new return of 1,096% between 1989 and 2009. The performance of the MSCI EM Index between 1989 and 2009 greatly exceeds the 9.22% annualized return and 537% total return of the S&P 500 Index during the same time period.

Emerging Markets may be a critical portion of an 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. Also, 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.

Many investment advisers recommend limiting Emerging Markets to no more than 10-15% of an aggressive investor's portfolio because of the inherent volatility of equities in Emerging Markets.

* 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 2013 in another post.

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