Definition: The MSCI Index was created by Morgan Stanley Capital International. Each MSCI Index measures a different aspect of global stock market performance. The MSCI indices are now managed by MSCI Barra.
The MSCI indices, like the Dow Jones or S&P 500, simply track the performance of the stocks included. They are used as the base for exchanged traded funds. They are also the comparison that actively managed mutual funds compare themselves to. The exchange traded funds follow the MSCI indices, while the mutual funds try to outperform them by picking better stocks.
The MSCI Emerging Market Index tracks the performance of stock markets in 21 developing countries: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey. In May 2014, Qatar and the United Arab Emirates will be reclassified as emerging markets, instead of frontier markets.
The Index compiles the market capitalization for all companies that are listed in these countries' stock markets. The Index is considered a good measurement of the stock performance of emerging markets. It represents 11% of the world's total market capitalization.
The MSCI Frontier Markets Index tracks the stock markets of countries which are even more volatile than emerging markets. However, they can also be very profitable, as they have lots of room for growth. The main risk is that they are very thinly traded. This makes them difficult to sell if the economy deteriorates. It also means they can more easily be manipulated by hedge funds. You really need to understand the countries, their political systems and their economic challenges.Furthermore, these countries very vulnerable to global shifts in trade, currency and central bank policy changes.
The 26 countries in the Index are: Argentina, Bahrain, Bangladesh, Bulgaria, Croatia, Estonia, Jordan, Kazakhstan, Kenya, Kuwait, Lebanon, Lithuania, Mauritius, Morocco, Nigeria, Oman, Pakistan, Qatar, Romania, Serbia, Slovenia, Sri Lanka, United Arab Emirates, Ukraine, Tunisia, Vietnam.
These frontier market countries are being considered for inclusion in the index: Bosnia Herzegovina, Botswana, Ghana, Jamaica, Palestine, Trinidad & Tobago, Zimbabwe. Although a frontier market, Saudi Arabia is included in the Gulf Cooperation Council (GCC) Country Index.
The MSCI EAFE Index measures developed markets excluding the U.S. and Canada. EAFE stands for Europe, Australasia, and the Far East. The MSCI EAFE Index consists of the following 21 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.
The MSCI World Index measures the market performance of 1,500 companies that have a global presence. It is often quoted by financial media to describe how the world's stock market is doing. However, it excludes stocks from emerging market countries, so it should really be considered a developed world index. The MSCI AC World Index includes emerging markets. "AC" stands for "All Country."
MSCI also has indices for a variety of other geographic sub-areas, as well as global indices for stock categories such as small-cap, large-cap and the . (Source: MSCI Index Definitions) Article updated February 1, 2014.