Developed Markets

Interpretation

The MSCI Developed Market Indices encompass a collection of indices that track the stock market performance in developed countries. A developed market, as characterized by MSCI, refers to a nation with an advanced economy, exhibiting features such as high levels of industrialization, a well-developed infrastructure, mature capital markets, and a higher standard of living. These markets are known for their stability, transparency, and liquidity.
Together these indices form the MSCI World Index, which is a widely recognized benchmark for developed market equities.
MSCI country indices are designed to include about 85% of the free float-adjusted market capitalization in each country. This approach ensures that the indices provide a comprehensive representation of the large and mid-cap segments of the respective national equity markets. The country index versions in the charts above are all denominated in USD, capitalization-weighted, and do not include dividends.

Further Information

• MSCI: Developed Markets Indexes
• Longermtrends: Emerging Markets
• Longermtrends: Emerging vs. Developed Markets
• Longermtrends: Frontier Markets
• Longermtrends: (All) MSCI Country Indices

Interpretation

This heatmap shows how the stock markets of developed countries move in relation to one another. Red squares indicate a positive correlation (markets moving together), while blue shows a negative correlation. Developed economies are often highly correlated due to strong trade links and integrated financial systems, as seen in the clusters of European and North American markets.

While high correlations can make diversification challenging, this chart helps identify which markets offer the most diversification benefit. Investing in countries with lower correlations can help reduce portfolio risk, a core concept in Ray Dalio's "Holy Grail of Investing" philosophy.

To create this chart, weekly returns are calculated for each country's MSCI index, and the Pearson correlation is computed for every pair. The heatmap is then organized using hierarchical clustering to group countries with the most similar market performance, making global economic patterns easier to spot.

Interpretation

The Minimum Spanning Tree (MST) simplifies the correlation matrix by showing only the strongest connections between indices. If two indices are linked, they have a strong positive correlation and tend to move in tandem. This helps identify clusters of related assets and is useful for portfolio diversification.
The tree is constructed by converting the correlations into distances and then finding the set of connections that links all indices with the minimum total distance. As noted by Marti, Gautier, et al. (2017), the optimal Markowitz portfolio is often found at the tree's outskirts, and the tree tends to shrink during a financial crisis.

Data Sources

• Europe
• MSCI Austria
• MSCI Belgium
• MSCI Denmark
• MSCI Finland
• MSCI France
• MSCI Germany
• MSCI Ireland
• MSCI Italy
• MSCI Netherlands
• MSCI Norway
• MSCI Portugal
• MSCI Spain
• MSCI Sweden
• MSCI Switzerland
• MSCI United Kingdom

• Asia
• MSCI Hong Kong
• MSCI Japan
• MSCI Singapore
• MSCI Israel

• North America
• MSCI Canada
• MSCI USA

• Oceania
• MSCI Australia
• MSCI New Zealand