The MSCI Emerging Markets Index has always been a barometer for global growth, but in 2025, its significance for Australian investors has reached new heights. With shifting global trade dynamics, a weaker Australian dollar, and evolving ESG priorities, the spotlight is back on emerging markets (EM) as a key portfolio diversifier. But what exactly is the MSCI EM Index, and why is it making headlines in Australia this year?
What is the MSCI Emerging Markets Index?
The MSCI Emerging Markets Index is a widely tracked benchmark that captures large- and mid-cap companies across 24 developing economies. Countries like China, India, Brazil, and South Africa dominate the index, but recent inclusions such as Saudi Arabia and Vietnam are altering its profile. The index comprises over 1,400 companies, representing sectors from technology and finance to energy and consumer goods.
- Geographic breadth: Exposure to 24 diverse economies
- Sector diversity: Technology, financials, materials, consumer discretionary
- Dynamic composition: Annual reviews can add or remove countries and companies
For Australians, the MSCI EM Index offers access to regions and industries not easily available on the ASX, making it a powerful diversification tool—especially as global growth pivots away from developed markets.
2025: Policy Shifts and Market Trends Impacting EM Index Performance
This year, several macroeconomic and policy shifts are reshaping the outlook for emerging markets, with direct consequences for index performance and Australian investors’ strategies:
- Interest rate divergence: While the RBA holds rates steady, central banks in emerging markets like Brazil and India have begun to ease, spurring local equity rallies.
- China’s recalibration: The Chinese government’s 2025 stimulus package and a renewed focus on green energy have buoyed mainland shares, making China’s ~30% weighting in the index a key driver.
- ESG momentum: As global funds (including Australia’s super funds) increase ESG mandates, companies in the EM Index are making strides on sustainability metrics—especially in renewable energy and social impact sectors.
- Currency volatility: The AUD’s recent softness has made EM investments more attractive, as returns are amplified when converted back to Australian dollars.
According to June 2025 data from MSCI, the EM Index outperformed the MSCI World Index in Q1 and Q2, driven by tech stocks in India and a rebound in Latin America’s consumer sector.
How Australians Are Accessing Emerging Markets in 2025
Traditionally, gaining EM exposure meant buying managed funds or global ETFs, but 2025 has brought more options and lower fees:
- ASX-listed ETFs: Products like iShares MSCI Emerging Markets ETF (IEM) and Betashares’ EM offerings have seen record inflows this year, with MERs (management expense ratios) dropping below 0.60% in some cases.
- Superannuation funds: Australia’s industry super funds have increased their EM allocations, particularly to infrastructure and green energy projects in Asia and Latin America.
- Direct shares via global platforms: More Australians are using platforms like Stake and SelfWealth to buy EM-listed companies, though this comes with higher risk and volatility.
Investors are also more aware of the unique risks in EM: political instability, regulatory changes, and lower liquidity. As a result, diversification within EM (not just across countries, but also sectors) is a growing trend among Australian portfolios in 2025.
Outlook: Should You Consider the MSCI EM Index?
As Australia’s economic ties with Asia and Latin America deepen, and global growth leaders shift, the MSCI Emerging Markets Index offers an avenue for potential outperformance and true diversification. But it’s not a set-and-forget option: 2025’s market volatility and policy changes demand ongoing monitoring and a keen eye on both currency and sector trends.
For Australians willing to look beyond the ASX, the MSCI EM Index is more relevant than ever—especially for long-term investors seeking exposure to the world’s fastest-growing economies.
