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Chart of the Week
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May 18, 2015

Anything but average
MSCI Emerging Markets and country indexes

chart

Source: Bloomberg, as of 5/12/2015.  Past performance is no guarantee of future results.  Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.

The bottom Line:

  • Emerging market equities—as measured by the MSCI Emerging Markets Index—have generated a solid return so far this year, up 8.2% in US$ terms through May 12th.1
  • But that figure hardly suggests the huge disparity of returns among the individual countries represented in the index.
  • Eleven countries in the index have negative returns so far this year; twelve were positive, but only five of those generated stronger returns than the overall index year to date.
  • In some cases (especially Russia, Turkey and Brazil), currency was a major influence on individual country total returns.
  • A similar dispersion is seen in forward P/E ratios with 7 countries below the overall index level of 14.6x with the individual country P/Es ranging from 5.8x to +18.3x.2
  • These differences at the country level aren't all that surprising given the significant variations in economic and political conditions.
  • And just as countries differ within the index, the performance, valuation and future prospects of individual companies within each country could vary significantly as well.
  • It all goes to show that aggregate and country level index statistics never tell the complete story.
  • And that can play to the strengths of active managers who combine regional expertise with rigorous research at the individual security level in the search for mispriced companies that could offer long-term value.

The chart:

  • The chart shows the year to date total return (through May 12, 2015) for the MSCI Emerging Markets Index and the MSCI indexes of the individual countries represented in the overall index.
  • China's 22.3% return has had a major effect on the overall total return so far this year as it represents 25% of the index.3
  • Other index heavyweights such as South Korea (15%), Taiwan (12.5%), Brazil (7.9%) and South Africa (7.8%) generated mixed performance of 6.4%, 7.4%, -0.3% and 4.38% respectively.4
  • The returns in Greece (-21.2%), Turkey (-12.1%), Hungary (33.9%) and Russia (44.3%) are not fully reflected in the chart due to the selected range of the vertical axis.
1 Source: Bloomberg, as of 5/12/15.
2 Source: Bloomberg, as 5/12/15.
3 Source: MSCI and Bloomberg. Index weighting is as of 4/30/15 and total return as of 5/12/15.
4 Source: MSCI and Bloomberg.  Index weighting is as of 4/30/15 and total return as of 5/12/15.

Definitions:

Emerging markets are nations with social or business activity in the process of rapid growth and industrialization. These nations are sometimes also referred to as developing or less developed countries.

The price-to-earnings (P/E) ratio is a stock's (or index's) price divided by its earnings per share (or index earnings). The forward P/E ratio is a stock's (or index's) current price divided by its estimated earnings per share (or estimated index earnings), usually one-year ahead.

The MSCI Emerging Markets Index captures large and mid cap representation across 23 Emerging Markets (EM) countries. With 835 constituents, the index covers approximately 85% of the free float adjusted market capitalization in each country.

The MSCI Brazil Index is designed to measure the performance of the large and mid cap segments of the Brazilian market. With 70 constituents, the index covers about 85% of the Brazilian equity universe.

The MSCI Mexico Index is designed to measure the performance of the large and mid cap segments of the Mexican market. With 30 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in Mexico.

The MSCI Chile Index is designed to measure the performance of the large and mid cap segments of the Chilean market. With 20 constituents, the index covers approximately 85% of the Chile equity universe.

The MSCI Peru Index is designed to measure the performance of the large and mid cap segments of the Peruvian market. With 3 constituents, the index covers approximately 85% of the Peruvian equity universe.

The MSCI Colombia Index is designed to measure the performance of the large and mid cap segments of the Colombian market. With 14 constituents, the index covers approximately 85% of the Colombian equity universe.

The MSCI South Africa Index is designed to measure the performance of the large and mid cap segments of the South African market. With 51 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in South Africa.

The MSCI Morocco Index is designed to measure the performance of the large and mid cap segments of the Moroccon market. With 8 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in Morocco.

The MSCI Egypt Index is designed to measure the performance of the large and mid cap segments of the Egyptian market. With 4 constituents, the index covers approximately 85% of the Eqypt equity universe.

The MSCI Qatar Index is designed to measure the performance of the large and mid cap segments of the Qatari market. With 11 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in Qatar.

The MSCI United Arab Emirates (UAE) Index is designed to measure the performance of the large and mid cap segments of the UAE market. With 9 constituents, the index covers approximately 85% of the UAE equity universe.

The MSCI Poland Index is designed to measure the performance of the large and mid cap segments of the Polish market. With 24 constituents, the index covers approximately 85% of the Polish equity universe.

The MSCI Czech Republic Index is designed to measure the performance of the large and mid cap segments of the Czech Republic market. With 3 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in Czech Republic.

The MSCI Greece Index is designed to measure the performance of the large and mid cap segments of the Greek market. With 10 constituents, the index covers approximately 85% of the Greece equity universe.

The MSCI Hungary Index is designed to measure the performance of the large and mid cap segments of the Hungarian market. With 3 constituents, the index covers approximately 85% of the Hungarian equity universe.

The MSCI Russia Index is designed to measure the performance of the large and mid cap segments of the Russian market. With 22 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in Russia.

The MSCI Turkey Index is designed to measure the performance of the large and mid cap segments of the Turkish market. With 25 constituents, the index covers about 85% of the equity universe in Turkey.

The MSCI Philippines Index is designed to measure the performance of the large and mid cap segments of the Philippines market. With 20 constituents, the index covers about 85% of the Philippines equity universe.

The MSCI China Index captures large and mid cap representation across China H shares, B shares, Red chips and P chips. With 140 constituents, the index covers about 85% of this China equity universe.

The MSCI India Index is designed to measure the performance of the large and mid cap segments of the Indian market. With 64 constituents, the index covers approximately 85% of the Indian equity universe.

The MSCI Indonesia Index is designed to measure the performance of the large and mid cap segments of the Indonesian market. With 30 constituents, the index covers about 85% of the Indonesian equity universe.

The MSCI Malaysia Index is designed to measure the performance of the large and mid cap segments of the Malaysian market. With 42 constituents, the index covers about 85% of the Malaysian equity universe.

The MSCI Taiwan Index is designed to measure the performance of the large and mid cap segments of the Taiwan market. With 101 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in Taiwan.

The MSCI Thailand Index is designed to measure the performance of the large and mid cap segments of the Thailand market. With 32 constituents, the index covers about 85% of the Thailand equity universe.


Important Information:

The opinions and views expressed herein are not intended to be relied upon as a prediction or forecast of actual future events or performance, or a guarantee of future results, or investment advice.

Equity securities are subject to price fluctuation and possible loss of principal.

Global investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.

Commodities contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors.

This material is for information only and does not constitute an invitation to the public to invest in any funds, securities, strategies or other products. You should be aware that the investment opportunities described should normally be regarded as longer term investments and they may not be suitable for everyone.  All investments involve risk, including possible loss of principal. The value of investments and the income from them can go down as well as up and investors may not get back the amounts originally invested, and can be affected by changes in interest rates, in exchange rates, general market conditions, political, social and economic developments and other variable factors. Past performance is no guide to future returns and may not be repeated. Investment involves risks including but not limited to, possible delays in payments and loss of income or capital. Neither Legg Mason nor any of its affiliates guarantees any rate of return or the return of capital invested.  Unless otherwise noted the “$” (dollar sign) represents U.S. Dollars.

Please note that an investor cannot invest directly in an index. Forward-looking statements are subject to uncertainties that could cause actual developments and results to differ materially from the expectations expressed. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed and is not a complete summary or statement of all available data. Individual securities mentioned are intended as examples of portfolio holdings and are not intended as buy or sell recommendations. Information and opinions expressed by either Legg Mason or its affiliates are current as at the date indicated, are subject to change without notice, and do not  take into account the particular investment objectives, financial situation or needs of individual investors.

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