Information on the MSCI World Index

The stock market indices are assets that are particularly sought after by investors due to their high liquidity, their strong volatility and the amount of information that can be found about them on the internet. The majority of the stock market indices that you can trade online are related to a single country’s economy or particular activity sector but there are more global indices that exist that combine the assets of several countries. The best known of these indices is the MSCI which is composed of several sub-indices according to the group of countries concerned. Here therefore is some information and advice to enable you to achieve your analyses of the MSCI.  

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Information on the MSCI World Index

What is the MSCI?

The abbreviation MSCI actually represents ‘Morgan Stanley Capital International’. As indicated by its name it is the Morgan Stanley Company in the United States that is responsible for its calculation.

However the MSCI is not really a single index but rather a group of reference indices that are among the most popular with holders of stock market portfolios. In fact, apart from the MSCI World there are a large number of MSCI indices relating to various groups of countries, single area countries or particular economic sectors. Each of these indices is associated with a series of sub-indices called derivate indices that take into account the size of the businesses concerned (such as small caps or large caps) or sometimes the classification method of these companies (such as value or growth).

In total there are no less than 11,000 different MSCI indices around the world as these indices can be created through a simple request.

 

The MSCI World:

The MSCI World is the best known of these indices as it is composed of stock market assets quoted worldwide. In truth, this name can be confusing as only the more developed countries are taken into account in the calculation of this index. There are currently 23 countries in this index. The assets of emerging or under developed countries are not taken into account in this world stock market index.

In total, the MSCI World Index includes between 1,500 and 2,000 assets with a singularly impressive total stock market capital of several thousand billion dollars.

It should be noted that nearly half this capital is held by American companies. Then we find the British companies with 25% of the total capital with only 10% held by European companies.

 

The historical evolution of the MSCI World:

In the beginning the MSCI World Index started with a quotation of 100 points before gradually increasing over 30 years before finally achieving 1,500 points. With the bursting of the Internet bubble the value of this index then fell to 700 points before recovering to a level close to 1,700 points towards the end of 2007.

The crisis that is currently sweeping through the developed countries is the origin of the new drop in its value down to 700 points.

 

The other major MSCI indices:

Among the MSCI indices that you can trade in on the online trading platforms we find the following sub-indices:

  • The MSCI European Index which uniquely takes into account the highest stock market capitals in the European Union.
  • The MSCI Emerging Markets Index that also does not take into account the stock market capitals of developed countries, uniquely those of emerging countries such as those from Asia.
  • The MSCI All Markets Index that truly takes into account all worldwide stock market capitals, including those of emerging markets and developed countries.

 

What is the composition of the MSCI World Index from a geographical point of view?

To learn more about the economies that are taken into consideration by the MSCI World Index we now offer you the opportunity to learn more about the composition of this index. In fact, contrary to that indicated by its name, this index does not really take into account all the countries throughout the world.

In reality, the composition of the MSCI World Index includes assets from the same countries as the MSCI EAOE Index as well as Canada and the United States. To summarise, the countries that are included in this index are as follows: Germany, Australia, Austria, Belgium, Canada, Denmark, Spain, the United States, Finland, France, Hong Kong, Ireland, Israel, Italy, Japan, New Zealand, Norway, Portugal, Singapore, Sweden, Switzerland and the United Kingdom.

These exists an MSCI Index that takes into account the countries from the MSCI World Index and those of the MSCI Emerging Markets Index, or the MSCI EM. This is the MSCIACWI, for MSCI All Country World Index, which takes into account the performance from the emerging countries as follows listed according to their geographical zones:

  • For the American market we find Brazil, Chile, Colombia, Mexico and Peru.
  • For the European market we find Greece, Hungary, Poland, Russia and the Czech Republic.
  • For the African market we find South Africa, Egypt and Morocco.
  • For the Middle East we find Turkey.
  • For Asia we find China, South Korea, India, Indonesia, Malaysia, the Philippines, Taiwan and Thailand.

Therefore, in reality, the investors that believe that by investing in the MSCI World Index they are in fact investing in a highly diversified index representing all the international stock markets are in fact mistaken. As can be seen, not all the countries of the world are represented and, another point, the components of this index are weighted according to their size on the market. This means that nearly half of the assets included in this stock market index are American. In second position we find the Japanese assets which represent nearly 8% of the total value. Then we find the United Kingdom with 5.6% of the total value followed by France with 3.4%, Switzerland with 3.2%, and Germany with 3.1% representing the major countries.

In the same way, concerning the activity sectors that are represented in this index we can observe several dominant sectors. The financial and IT sectors alone represent more than 35% of the composition of MSCI World, plus the energy sector with 6% of its value and the real estate sector with 3% of this index’s value.

When you invest in the MSCI World Index rate you should therefore pay careful attention to the American market as well as financial and IT companies.

 

The classification of companies in the different MSCI indices according to their size:

The MSCI classification of companies varies according to their size. We should note here that the size of a company quoted in fact corresponds to its total stock market capital, or company value, as well as other indicators that can also be taken into account such as the turnover or the number of employees.

We know that the so called standard MSCI indices include large and medium sized companies, also called large caps and mid caps. It should be noted here that an MSCI Index without further precision is considered to be a standard index. These indices in fact structured in such a way that the total stock market share capital equals 85% of the capital of the stock market concerned.

The small companies, also called small caps, are not included with the standard companies. However, the standard and small companies form part of the composition of the IMI, or Investable Market Index.

To conclude, in the last sector of this classification of companies included in the MSCI Indices we find the companies called ‘micro caps’ which represent around 1% of the total stock market capital.

With the various information you have learned through this article you will now be in a position whereby you can understand how this stock market index operates as well as its derivatives and therefore how you can invest in it. To complete this type of investment, whether you wish to invest in the index itself or one of the assets included, you can use several different financial instruments or contracts such as ETFs or CFDs (Contracts for the Difference) that replicate the performance. In fact, on the current online trading platforms you will be able to access the vast majority of the company shares that are included in the composition of the MSCI World Index and can therefore speculate on their share price on the rise or on the fall.

Frequently Asked Questions

How do I invest in the MSCI World?

It is not possible to buy the MSCI World directly as it is a stock market index. But there are different ways to invest in the MSCI World. For example, you can use ETFs if you have a securities account or a CFDs or contracts for difference, which are derivatives that allow you to bet on the rise or fall of a benchmark index.

What is the country weighting of the MSCI World?

The proportion of each country represented in the MSCI World varies according to the number of companies in those countries and their weight. For example, 66% of the MSCI World index is made up of US stocks, 4.3% of UK stocks, 3.4% of French stocks, 3.2% of Canadian stocks, 2.9% of Swiss stocks, 2.8% of German stocks, 2.2% of Australian stocks, 1.2% of Dutch stocks, 1% of Swedish stocks and 5.2% of other countries.

What is the sector breakdown of the MSCI World Index?

The MSCI World Index has a wide range of sectors and their weighting varies from one sector to another. For example, the information technology sector accounts for 21.7% of the index, healthcare 12.9%, financials 12.7%, consumer cyclicals 12%, industrials 10.6%, communications 9%, consumer staples 7.6%, materials 4.5%, utilities 3.1% and energy 2.9%.

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