How To Invest in Emerging Markets Index
Investing in emerging markets has long been the allure of many investors trying to capitalise on the long-term growth opportunities provided by new and emerging economies. Historically, emerging markets were very biased towards manufacturing and agricultural sectors. Nowadays, emerging markets are the key drivers of global growth and are home to some of the world's most innovative companies causing investors to relook at the possible growth opportunities.
In this article, you will learn:
- How to invest in emerging markets
- What the MSCI Emerging Markets Index is
- Why investors are currently focusing on emerging markets and the iShares MSCI Emerging Markets Index ETF specifically
Why consider Emerging Markets Index investing?
According to an analysis by the International Monetary Fund (IMF) and PriceWaterhouseCoopers (PwC), global economic power will shift from the G7 (US, UK, France, Germany, Japan, Canada and Italy) to the E7 (China, India, Indonesia, Brazil, Russia, Mexico and Turkey) by 2050, as the image shows below.
Source: The World in 2050 by PwC
Investors are, unsurprisingly, keen to try and tap into this economic shift of power towards emerging markets. Even Legg Mason, one of the world's largest global asset managers, has highlighted a shift into how investors look at emerging markets and the potential long-term investment opportunities they have available.
Emerging and developing economies now account for 59% of the world's Gross Domestic Product (GDP), whereas, the advanced economies share of global GDP continues to decline, as the chart below highlights:
As there are many different countries classed as 'emerging' it can be difficult for investors to track and even access. This is why the MSCI Emerging Markets Index has become hugely popular in tracking the development of emerging market economies as a whole.
What is the MSCI Emerging Markets Index?
The MSCI Emerging Markets Index is used to measure the stock market performance in global emerging markets. The index launched in 1988 by the company MSCI which stands for Morgan Stanley Capital International.
According to the performance sheet on MSCI's website, the index "captures large and mid-cap representation across 26 Emerging Markets (EM) countries. With 1,401 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country."
The index covers five regions and 26 countries around the world as the image highlights below:
Source: MSCI Emerging Markets
The index itself has grown substantially from just ten countries in its inception. While the index now covers a much larger range of countries the weightings given to each country does vary, as the chart shows below:
Source: MSCI Emerging Markets
The above chart shows that the index leans heavily towards Asia countries such as China, Korea and Taiwan with much lesser influence from South America or African countries. While the index also tracks companies from a wide variety of sectors there is more exposure from financial and information technology companies, as seen below:
Source: MSCI Emerging Markets
The index itself covers a wide variety of sectors such as materials, energy, consumer staples, health care and more. The MSCI website also gives investors information relating to the characteristics of the index such as its market capitalization and the top ten holdings in the index, as detailed below:
Source: MSCI Emerging Markets
While the index is quite focused on certain countries and sectors, it is still quite well diversified to give investors a sense of what is happening in the bigger picture of emerging markets. Unlike other indices such as the Dow Jones 30 Index, the MSCI Emerging Markets Index, is purely used as a way to track the performance of equities in emerging markets. To trade or invest in the index, investors will typically use an ETF (Exchange Traded Fund) of the index.
For example, below is a chart of the iShares MSCI Emerging Markets Index ETF, taken from the MetaTrader 5 trading platform provided by Admiral Markets UK Ltd.
Source: Admiral Markets MT5, EEMUS, Weekly chart (between 8 July 2018 to 12 March 2020). Accessed: 12 March, 2020, at 10:45 am GMT - Please note: Past performance is not a reliable indicator of future results or future performance.
Did you know that you can download the MetaTrader 5 trading platform provided by Admiral Markets completely FREE? After downloading it you can view historical prices of a wide range of instruments covering multiple asset classes. Having the platform will also prove useful in a later section when we go through a step by step process on how to access Emerging Markets Index ETFs from the platform. You can start your free download by clicking the banner below:
What is the iShares MSCI Emerging Markets Index ETF?
ETFs were first created in Canada in 1990 and were designed to track the performance of a specific index. For example, the iShares MSCI Emerging Markets Index ETF tracks the performance of the MSCI Emerging Markets Index, the Vanguard S&P 500 UCITS ETF tracks the performance of the S&P 500 stock market index.
The company iShares is a global leader in ETFs providing more than 300 ETFs to invest in which are managed by the world's largest asset manager, BlackRock. According to the iShares website, the MSCI Emerging Markets Index ETF's investment objective "seeks to track the investment results of an index composed of large- and mid-capitalization emerging market equities.
The performance of the iShares MSCI Emerging Markets Index ETF is shown in the table below:
While the returns may look appealing for some investors, investing in emerging markets is still classed as high-risk. This is evident to see in the long-term, hypothetical, chart of how a $10,000 investment in the ETF has performed over the years. This can be found directly on the iShares website and is shown below:
Source: iShares - Please note: Past performance is not a reliable indicator of future results or future performance.
It's clear to see that while a hypothetical investment of $10,000 invested in 2003 has grown over time, there are times of severe losses that investors need to be aware of. The art of investing is being able to balance your tolerance to risk with the opportunity for gain.
Investing in Emerging Market Index ETFs with Admiral Markets
Admiral Markets offers users the ability to trade on and invest in a variety of different Emerging Market Index ETFs. While the iShares MSCI Emerging Markets Index ETF is one of the most well-known products to gain exposure to emerging markets, there are many others.
To view the list of available products, simply visit the Admiral Markets Contract Specification page. From here you can search for 'emerging markets' to see which products are available, as shown below:
As you can see from above there are a variety of Emerging Market products available from different providers such as Schwab, PowerShares, Amundi, Lyxor, Xtrackers, iShares and more. All of these products are also available directly in the MetaTrader 5 trading and investing platform provided by Admiral Markets. In the platform, users can view the different products available, as well as view charts and technical indicators for analysis. Users can also open a trading and investing ticket directly from the chart.
Read on to learn how to get started.
How to start investing in Emerging Markets Index ETFs
Investing in stocks and ETFs can be done in just three simple steps:
- Open a stock and ETF account.
- Download your investing platform.
- Open a ticket and make your first investment!
1. How to open your Invest.MT5 stocks and ETFs account
To open an account, visit the Admiral Markets homepage and click on the green button labelled Create Account:
Then fill in the details required such as your first name, last name, email and then password:
Once this is done you will have instant access to the Trader's Room! From here, you can open different types of trading and investing accounts:
After clicking the green button labelled Open Live Account, you can select the account you wish to open. For investing in stocks and ETFs, select Invest.MT5:
From here, you can begin the application process for your Invest.MT5 account after filling out an application, uploading required documents and going through a verification process. Once this has been done, and your application has been approved, you are ready to download your MetaTrader 5 trading and investing platform.
2. How to download your MetaTrader 5 trading and investing platform
From the Trader's Room homepage, navigate to the bottom and select the MetaTrader 5 for PC or MetaTrader 5 for Mac download links. Alternatively, you could use the MT5 Web Trader platform, allowing you to invest directly from your browser with no download required.
If you do choose to download a desktop version, simply follow your computer's prompts to complete the download of your MetaTrader 5 platform.
3. Making your first investment from the MetaTrader 5 platform
To make your first investment from the MetaTrader 5 platform, follow these steps:
- Open the Market Watch window by selecting View from the menu at the top of the platform or by pressing Ctrl+M on your keyboard. This will open up a list of tradable symbols on the left side of your chart.
- Right-click on the Market Watch window and select Symbols or press Ctrl+U on your keyboard.
- This will then open the window shown below which details all the markets available for you to trade on. From here you can add a wide variety of stocks and ETFs to your Market Watch window by selecting the relevant instrument, or searching for the market you wish to trade and then clicking Show Symbol.
The Admiral Markets MetaTrader 5 Supreme Edition trading platform showing the Symbols window.
Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.
After clicking the OK button in the Symbols window you can now view the different instruments in the Market Watch window. To view a price chart of an instrument, simply left-click on the symbol in the Market Watch window and drag it onto the chart area. From here you can now open up a ticket to make your first investment:
- Right-click on the chart.
- Select Trading.
- Select New Order, or press F9 on your keyboard.
- A trading ticket will open for you to input your entry price, stop loss and take profit levels and your share trading size (volume).
An example of the MetaTrader 5 trading platform provided by Admiral Markets, showing a trading ticket window.
Disclaimer: Charts for financial instruments in this article are for illustrative purposes and do not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.
To learn more about the MetaTrader 5 trading platform, feel free to watch the video below:
About Admiral Markets
Admiral Markets is a multi-award winning, globally regulated Forex and CFD broker, offering trading on over 8,000 financial instruments via the world's most popular trading platforms: MetaTrader 4 and MetaTrader 5. Start trading today!
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or recommendation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.