India to overtake China to have top weight in MSCI EM Index in 5 yrs

India-China in MSCI EM index: In the two decades from 2000 to 2019, India’s economy size grew 6x, while its weightage in the MSCI increased by 150 bps.

With domestic reforms, macro-financial stability, and a large consumer market (due to growing population) in India and the opposite situation in China, it would be surprising if India does not surpass China in MSCI weightage, a recent report by Elara Securities said. 

China’s move from a $1.2 trillion economy to a $5 trillion economy in 2009 saw its weight in the MSCI Index rise ~5x from 3.3 per cent in 2000 to 15.3 per cent, the report added further. 

Overall, through 2000 to pre-Covid period (CY19), i.e., in the two decades, China’s average five-year CAGR growth has been 12 per cent, which pushed up its MSCI Index by 9.5x from 3.3 per cent to 31.4 per cent. 

According to the report, China’s growth continues to remain under pressure due to high debt, limited capital splurging, an aging population, a rigid political regime, and easing productivity and India continues to remain on a steady growth path.

“India’s nominal per capita GDP to outdo China’s in 2043,” the report added. 

What is the MSCI EM Index?

The MSCI Emerging Markets Index captures large and mid-cap representation across 24 Emerging Markets (EM) countries. 

With 1,441 constituents, the index covers approximately 85 per cent of the free float-adjusted market capitalization in each country.

The term “Emerging Markets” was originally coined in 1981 by a World Bank economist and it helped establish emerging markets as a distinct investment class. 

In 1988, MSCI launched the MSCI Emerging Markets Index — one of the first investable benchmark index global equity markets in the space. Today, we have over $1.3 trillion in assets under management benchmarked to our emerging markets indexes.