Changes in Emerging Markets Index
MarketWatch.com reported that MSCI Barra is contemplating changes to the Emerging Markets Index — South Korea and Israel could be promoted to developed country status, dropped from the emerging markets index and included in the MSCI EAFE Index. Kuwait, Qatar and UAE are being considered for inclusion in the MSCI Emerging Markets Index.
Dropping South Korea and Israel from the emerging markets index will likely result in a significant turnover in the iShares MSCI Emerging Markets ETF (EEM) and Vanguard Emerging Markets ETF (VWO) as these two markets make up about 16% of the funds. VWO’s turnover in the past has been modest ranging from 9% to 26%.
The MarketWatch.com report suggests that the changes could make emerging markets “more volatile and worsen their performance”, which is probable but shouldn’t concern investors too much. Emerging markets have been a very volatile asset class in the past and are likely to remain so. The emerging market ETFs are still broadly diversified and remain a viable option for getting exposure to this asset class.