An Alternative to Market Capitalization Weighted Indices for Global Markets
The MSCI GDP Weighted Indices are designed to reflect the size of a country’s economy rather than the size of its equity market by using country weights based on a country’s gross domestic product (GDP). Some investment professionals prefer to weight countries in a regional index by GDP rather than by market capitalization because:
- GDP figures tend to be more stable over time compared to equity markets’ performance-related peaks and troughs
- GDP weighted asset allocation tends to have higher exposure to countries with above average economic growth, such as emerging markets
- GDP weighted indices may underweight countries with relatively high valuation, compared to market-cap weight indices.
Largest Absolute Weight Difference Between the Standard Market Capitalization Weighted MSCI ACWI and its GDP-Weighted Equivalent
| Country | Market-cap Weighted | GDP Weighted | Weight Difference(GDP-Market Cap) |
| China | 2.39% | 9.26% | 6.87% |
| Germany | 2.95% | 6.31% | 3.36% |
| Italy | 1.08% | 3.99% | 2.91% |
| Russia | 0.83% | 2.32% | 1.49% |
| Spain | 1.31% | 2.75% | 1.44% |
| India | 1.00% | 2.42% | 1.42% |
| Switzerland | 2.93% | 0.93% | -2.01% |
| Canada | 4.57% | 2.52% | -2.05% |
| United Kingdom | 8.11% | 4.10% | -4.01% |
| United States | 44.39% | 26.76% | -17.63% |
Data as of June 1, 2009
The largest overweight countries in the MSCI ACWI GDP Weighted Index are classified as emerging markets, such as China, Brazil, India, Russia and Mexico, which are some of the fastest growing economies but have market capitalization weights that are smaller than their economic weights.
However, the list of over weighted countries also includes some developed markets, such as Germany and Italy.
The US and the UK have the largest disparity in size between their substantial market cap weights and their smaller economic weights.
