Morningstar Magazine - December 2017/January 2018 - 52

Strategies

From November 2009 through August 2017, the
MSCI China Index gained 6.3% on an annualized
basis, while the MSCI Brazil Index declined
by 4.15% annualized. These divergent paths
speak to effects of the commodity boom
and subsequent bust on Brazil's stock market
(and currency) and the emergence of a pair
of tech giants-Tencent Holdings TCEHY and
Alibaba Group BABA-in China.
This brings us to emerging markets' 2017
reawakening. An attribution analysis of EEM's

year-to-date performance through the end
of September reveals that the above-mentioned
Chinese tech behemoths have combined
to account for more than 5 percentage points of
the fund's gains. Rounding out the list of
the fund's top five contributors are Samsung
SMSN:GB, Taiwan Semiconductor TSM, and
Naspers NPSNY-which have collectively added
about 4 percentage points to EEM's 2017
effort. The tech-led stock rally is not a U.S.-only
phenomenon-emerging markets are participating,
too. The transition from a portfolio dominated

by basic materials and energy giants to one led by
emerging titans of technology has marked the
most recent evolution of emerging stock markets,
but what might come next?
What the Future Might Hold

While the makeup of the universe of emergingmarkets stocks will inevitably continue to
evolve, it is impossible to say what it will look like
10 years from now. That's precisely why many
investors choose to invest in this market segment
using a broad, market-cap-weighted index fund.

EXHIBIT 2

Ebb and Flow The country-level composition of the MSCI Emerging Markets Index shifts to China.
Country Composition of iShares MSCI Emerging Markets ETF
100%
China's growth: 3.3% to 28.9%

80
60
40
20
0
03

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Brazil
Chile
China
Czech Republic
Hong Kong
Hungary
India
Indonesia
Israel
Mexico
Russia
Singapore
South Africa
South Korea
Taiwan
Thailand
Others

2017

Source: Morningstar. Data from 04/30/2003 to 09/30/2017.

EXHIBIT 3

Sector Shuffle Technology takes up an increasing share of the MSCI Emerging Markets Index.
GICS Sector Composition of iShares MSCI Emerging Markets ETF
100%

Energy
Materials
Industrials
Consumer Disc
Consumer Stpls
Healthcare
Financials
Info Tech
Telecom Svcs
Utilities
Real Estate

80
60
40
Information Technology: 26.9%

%

20
0
03

2004

2005

2006

Source: Morningstar. Data from 04/30/2003 to 09/30/2017.

52

Morningstar December/January 2018

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017



Table of Contents for the Digital Edition of Morningstar Magazine - December 2017/January 2018

Contents
Morningstar Magazine - December 2017/January 2018 - Cover1
Morningstar Magazine - December 2017/January 2018 - Cover2
Morningstar Magazine - December 2017/January 2018 - 1
Morningstar Magazine - December 2017/January 2018 - 2
Morningstar Magazine - December 2017/January 2018 - Contents
Morningstar Magazine - December 2017/January 2018 - 4
Morningstar Magazine - December 2017/January 2018 - 5
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