MSCI Emerging Markets Index vs S&P 500

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Category: Trading Guides | Author: Trading Brokers | Date: April 18, 2026

Introduction

This article examines objective, verified aspects of the MSCI Emerging Markets Index and the S&P 500 Index. It focuses on definitional structures, composition, long‑term performance, volatility, returns, valuation differences, and recent relative performance trends.

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Index Definitions and Composition

MSCI Emerging Markets Index

The MSCI Emerging Markets Index tracks approximately 1,250 large‑ and mid‑cap equities across a defined set of emerging economies. It covers about 85% of free‑float market capitalisation in each included country. Its constituents span regions including Latin America, Asia, Europe, the Middle East, and Africa. The ten largest companies in the index account for more than one‑quarter of its total weight.

S&P 500 Index

The S&P 500 Index represents a major benchmark of the United States stock market. It consists of 500 large‑capitalisation U.S. companies and serves as a widely used indicator of the performance of the American equity market.

Historical Returns and Long‑Term Perspective

Since Inception

Since its inception, the MSCI Emerging Markets Index has produced average annual returns similar to those of the S&P 500. Both indices have achieved long‑term annualised returns of around 7–8%. Over extended timeframes, each has experienced periods of outperformance depending on macroeconomic conditions and regional growth trends.

In cumulative terms, the MSCI Emerging Markets Index has at times outperformed the S&P 500 over multi‑decade horizons, driven by strong growth in regions such as East Asia and Latin America. However, this trend has not been consistent across all periods.

Recent Trends and Volatility

In recent years, indices tracking emerging markets have exhibited higher short‑term volatility. The MSCI Emerging Markets Index has seen peak‑to‑trough drawdowns exceeding 65%, compared with about 55% for the S&P 500. However, on a day‑to‑day basis, the volatility of emerging markets is not necessarily higher than that of U.S. equities, depending on the period analysed.

Rolling 100‑day return data has often shown the S&P 500 outperforming MSCI EM in most short‑term windows. During some recovery phases, emerging markets have briefly outpaced U.S. equities, only to fall behind again due to geopolitical risks, commodity price swings, or currency fluctuations.

Valuation and Structural Differences

Emerging market equities frequently trade at lower valuation multiples compared to U.S. equities. The MSCI Emerging Markets Index has typically maintained a forward price‑to‑earnings (P/E) ratio significantly below that of the S&P 500, with discounts often around 30–40%.

The sector composition of each index is also different. MSCI EM includes a higher proportion of financials, materials, and consumer discretionary sectors. In contrast, the S&P 500 is more heavily weighted toward information technology, healthcare, and communication services. These differences reflect broader structural and economic patterns between emerging and developed economies.

Recent Relative Performance (Short‑Term)

In the most recent periods, the MSCI Emerging Markets Index has delivered stronger returns than the S&P 500. Gains exceeding 15% have been recorded in certain recent timeframes for emerging markets, while U.S. equities have delivered more modest performance.

One of the contributing factors to this outperformance is a weakening U.S. dollar, which tends to support asset prices in emerging markets. Increased capital inflows and positive sentiment around economic reforms in certain countries have also contributed to improved short‑term results. Nevertheless, risks such as global monetary policy shifts and regional instability remain potential headwinds.

Summary Table of Key Differences

Feature	MSCI Emerging Markets	S&P 500 (U.S. Equities)
Geographic Focus	Diverse emerging economies	United States
Constituents	~1,250 equities	500 large‑cap U.S. companies
Historical Average Return	~7.6% annualised	~7.8% annualised
Volatility (ETF proxy)	Slightly lower, but deeper drawdowns	Slightly higher, but milder drawdowns
Dividend Yield	~2.4%	~1.1%
Valuation (Forward P/E)	~12×, ~40% lower than U.S.	Higher valuation multiple
Recent (Short‑Term) Return	≈18% gain recently	Less than half of EM’s return

Conclusion

The MSCI Emerging Markets Index and the S&P 500 Index represent contrasting investment universes: one anchored in developing economies, the other in the United States. Long‑term performance has been broadly similar, although shaped by differing sectoral exposure, economic cycles, and valuation levels. Short‑term data shows recent outperformance by emerging markets, but long‑term return parity and valuation gaps remain key features of the comparison. The choice between them involves trade‑offs in regional exposure, volatility, and growth potential.

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