Anyone who wants to attack the stock market will find Tiger very likeable. The elegant animals can run at lightning speed and make big leaps in the process. No wonder that marketing experts from emerging countries such as Taiwan, South Korea and Vietnam once awarded the label “Tiger States”. As an investor, who doesn’t want to be one of the rapid attackers and take the big leap?
As a result, emerging markets are always in the favor of investors: index providers have even invented their own stock barometers that are supposed to map the course of emerging economies. The best known is undoubtedly the MSCI Emerging Markets, in German: MSCI Emerging Markets. This index comprises around 1400 stocks from 27 emerging nations. “From Argentina to China to Poland, investors are there in many countries,” says Markus Thomas from the ETF rating agency Xenix.
However, investors should be aware of two peculiarities: Asian countries have a special weight in the index. “They dominate the index with more than 70 percent,” says finance professor Hartmut Walz from the Ludwigshafen University of Applied Sciences. In addition, many African countries are missing because the index provider MSCI often does not classify them as emerging countries – but rather among the less advanced developing countries. Anyone who relies on the MSCI Emerging Markets is leaving out countries such as Nigeria, Morocco or Mali.
For ETF investors, the MSCI Emerging Markets can make sense above all if they want to diversify their portfolio. In the popular industrialized countries index MSCI World, stocks from the USA now make up almost 70 percent of the index weight. “Those who also rely on the MSCI Emerging Markets can reduce the overwhelming power of the USA in the portfolio,” says finance professor Walz. If you want that, you could, for example, only fill 70 or 80 percent of the share component of your portfolio with the MSCI World industrialized country index – and bet 20 or 30 percent on the MSCI Emerging Markets. Suitable ETFs are available from State Street (ISIN IE00B469F816) or Amundi (ISIN LU1681045370), for example.
However, investors should be aware that emerging markets are not in themselves a source of returns. bills show: Anyone who invested in emerging markets from 1960 to 2020 would have earned more returns than with industrialized countries. In the long term from 1900 to 2020, however, the developed nations were ahead. In the end, investors with an emerging market investment should not primarily chase tigers – but broaden their portfolio.