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Since its inception in December 1987, the MSCI Emerging Markets index has seen its composition at times dominated by single countries. However, since its inclusion in 1996, China’s footprint in the index has risen above anything previously observed. In this note we outline the case for separating China from the MSCI Emerging Markets index, using the MSCI Emerging Markets Ex-China index.

China’s economy represents a sizeable portion of the global GDP, but has been historically underrepresented in global market indexes, both in Equity and Fixed Income. Taking the Equity market as an example, the share of Global GDP for China is around 18% while the weight of China in MSCI ACWI is a mere 3.3%.

While this under-representation holds true for global equity indices, if we focus on Emerging Markets the picture changes substantially.

China’s rise in importance poses some questions in regards to its place within EM. We have already seen how this increase in weight has been linked to the growing dominance of China’s economy within Emerging Market countries. In the research we will analyze how China compares to the rest of EM from a sector, returns and correlation perspective. Download the research now to learn more.