Whenever I talk about emerging markets, people want to argue with me. Why is Korea on the list, when it’s as developed as any country out there? How can you say China is an emerging market when its GDP is the world’s second largest?
The answer is simple. An emerging market is any that is listed in the MSCI Emerging Markets Index: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey. Most professional investors let MSCI Barra do the work of figuring out which markets are emerging and then allocate funds accordingly. The performance of the pros is compared to this index, so they have to pay attention to what is in it. A portfolio manager may think of Poland as developed, but as long as it is in the index, Poland has to be considered when structuring an emerging markets fund.
At least once a year, MSCI adjusts the index. Some countries graduate to developed status, and others are demoted to frontier markets. Likewise, some members of other indexes move up, and others move down. Investors tend to buy and sell investments accordingly.
