Emerging markets is a term used to describe economies considered to be in a transitional phase from developing to developed economies. Apart from that one common characteristic, each of the underlying countries has its own currency, economic policy and a set of companies across different sectors which makes broad comparison across markets very difficult.

The MSCI Emerging Markets Index (“MSCI EM”) is the most commonly used benchmark which solves this problem by bringing these countries and companies into a single index which adjusts for the transition from developing to developed economies over time.

This process of constant adjustment in the MSCI EM has recently resulted in one of the largest changes to the risk profile of the index since its launch. Our analysis of the two main changes (the growing weight to Chinese equities and the evolving sector composition of the index) indicates that emerging markets now offer a very different proposition to the investment opportunity in the last 10, 20 or 30 years.

Based on the analysis, we explain the five key observations that we believe are relevant for all investors: