Some investors seem surprised that emerging market stocks, as measured by the MSCI EM Index, are up over 12% this year (as of 11/24/20), a bit behind the S&P 500, but outperforming the MSCI EAFE Index by 8.9%. A perception exists, which is not entirely unfounded, that most emerging market countries would find it difficult to navigate the coronavirus pandemic to minimize the damage to their economies and stock markets. Markets throughout Latin America have definitely suffered, but those markets on the front edge of the pandemic, namely China, South Korea, and Taiwan faced some initial difficulties and are weathering the economic storm. Investors have noticed and are driving strong performance in those markets.
The chart below illustrates the performance of the MSCI Emerging Markets Index, the MSCI Emerging Markets Ex-Asia Index and the MSCI Emerging Markets Asia Index.
Performance from the Asian emerging market countries has had a dramatic impact on the overall index returns.
|MSCI EM Index||12.1%||19.5%||4.5%||10.4%|
|MSCI EM Ex-Asia Index||-16.3%||-11.3%||-3.7%||3.4%|
|MSCI EM Asia Index||22.2%||30.6%||7.0%||12.7%|
Looking deeper into the data, an investor avoiding emerging markets in Asia would have underperformed the broad index by an astounding 28.4% on a year-to-date basis and by 7% per annum over the last five years.
Examining the composition of the MSCI Emerging Markets Index shows that four countries, China, Korea, Taiwan, and India comprise almost 75% of that index. The East Asian countries – China, South Korea and Taiwan have large manufacturing-based, export oriented economies have done particularly well relative to their peers in different geographic regions.
Investors accessing emerging markets through broad based index products should pay attention China, Korea and Taiwan because performance of those markets will largely determine the future performance of those vehicles.