Global stock indices track stocks listed in different markets across the world. They provide an insight into the performance of global stock market and help investors compare the performance of their portfolios.
Indexes are categorized into various size buckets, such as large-cap, mid-cap, and small-cap. They also have various weighting methodologies. These include market-cap weighting and free-float market-cap weighting.
MSCI World
MSCI World is an index that contains a large number of stocks from different markets. It is used as a benchmark for many global stock funds.
It is a market cap-weighted index, meaning that a change in the price of one stock will have an impact on the index. It also uses a variety of factors to determine which stocks are included in the index.
A company with the largest market capitalization is given the most weight in the index. This reflects the fact that the largest companies are more important to an economy than smaller ones.
The index includes stocks from 23 developed markets and 26 emerging markets. Its components are regularly reviewed and rebalanced by analysts within MSCI. This ensures that each index continues to act as an effective equity benchmark for its markets.
MSCI Developed Markets
MSCI Developed Markets is one of the most popular global stock indexes. It contains large and mid-cap equity performance across 23 developed markets and 26 emerging markets spanning 11 sectors. Its wide coverage and carefully-designed methodology support its ability to reflect fluctuations in the sizes, styles, sectors, and geographical areas of equities.
The MSCI Developed Markets Indexes are used by global investors to define and help structure their equity allocations. They also allow investors to incorporate tactical views into their portfolios.
Each year, MSCI announces the results of its evaluation of each country’s equity markets to determine their classification as a developed, emerging, frontier or standalone market. While evaluating markets for potential reclassification, MSCI takes into consideration investors’ experience of market accessibility and does not force a decision that may take market participants by surprise.
This annual process ensures that the MSCI Indexes remain relevant and precise investment decision support tools for clients, as well as accurately representing the equity markets they measure. It is part of MSCI’s commitment to transparency and fairness in the equity market.
MSCI Emerging Markets
The MSCI Emerging Markets Index measures the performance of large and mid-cap companies in 24 emerging markets. Its index component list consists of 1,385 constituents, representing about 85% of free float-adjusted market capitalization.
China has been the biggest contributor to emerging markets’ reawakening stock rally, with its stocks making up over 3 percentage points of the MSCI Emerging Markets Index’s gain through the end of 2020. Tech behemoths like Alibaba, Samsung Electronics, and Taiwan Semiconductor Manufacturing accounted for another 1.5 percentage points of the index’s gains.
Every June, MSCI announces the results of its annual evaluation of the 77 countries it covers to determine their classification as a developed, emerging, frontier or standalone market. This process follows extensive consultations with international investors around the world.
Other Specialized Stock Market Indexes
Stock market indices track the performance of a broad range of securities, allowing investors to benchmark their portfolios against each other. They can also be used to monitor how different types of stocks are performing, including value and growth stocks, as well as bonds.
Often a stock market index will begin with a fixed value, and then change over time as the underlying prices of the component stocks fluctuate. This value can then be compared with other indices to determine how the index has performed over time.
An index may be broad-based, such as the Wilshire 5000, or more specialized, following a single industry sub-group. Some indices also include a variety of different equity issues, such as real estate investment trusts (REITs) and master limited partnerships (LLPs).