About 30% of the MSCI EM Index is China alone
“China could get too much of the index very soon,” Mark Mobius, executive chairman of Templeton Emerging Markets Group, had commented over a June 22 interview on Bloomberg. On June 20, index provider MSCI announced that in June 2018, it will begin including China A shares in the MSCI Emerging Markets Index (EEM) (VWO) and the MSCI ACWI Index (ACWI). Accordingly, by 3Q18, dollar-denominated Chinese stocks (FXI) (YINN) would command 28.55% of the MSCI Emerging Markets Index while China A shares (CNYA) would constitute a 0.73% of the index; which means about 30% in sum represented by China alone. “If you calculate where it could be based on the market capitalization, China’s share could be up to 40% of the index,” commented Mobius.
Mark Mobius’ optimism around India and Brazil
While shedding light on the massive weighting that China and its companies would soon be having on the MSCI Emerging Markets Index, Mobius also pointed to two other emerging markets that investors should keep in perspective. Mobius expects India (EPI) and Brazil (EWZ) to grow and balance out the overbearing of China on the MSCI EM index over time. This translates to a rather optimistic outlook on these two economies by an emerging market mogul.
On June 13th, Mark Mobius commented on his blog post that he is bullish on India. “Bureaucratic hurdles are still quite significant in India (EPI) (INDA) (INDY). Even with bureaucratic barriers, we believe India remains a very attractive destination for investors…..The big caps are expensive, but small caps are interesting,” said Mobius in his post. Mobius expects the introduction of Goods and Services Tax (GST) in India “to have a big, big impact on all the companies, particularly the small ones.”
Moreover, the legendary emerging markets investor remains bullish on Brazil (EWZ), despite its political headwinds. “I think you’re looking over a three or four-year period maybe 40, 50 percent upside because we’ve come down a lot … I believe that this Lava Jato scandal situation is going to be very very good for Brazil because what it means is that reform will be forced into the government,” said in a Reuters interview on June 21st. Mobius likes beverage and consumer banking stocks in Brazil.