MSCI's August adjustments will take effect on August 31, with significant divergence in Asia Pacific passive fund flows
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MSCI's August adjustments will take effect on August 31, with significant divergence in Asia Pacific passive fund flows
Goldman Sachs expects MSCI core-index rebalancing to generate substantial two-way trading, favoring Japan, India, Taiwan and China, as well as technology hardware and semiconductor sectors.
- The MSCI EM Index is set to add 44 constituents and delete 55; the MSCI World Index is set to add 8 and delete 37.
- MSCI core-index adjustments in Asia Pacific and global emerging markets are expected to generate more than US$35 billion/US$24 billion in gross two-way flows, respectively, and approximately US$2.3 billion/US$1.0 billion in net passive inflows.
- By net inflows, Japan, India, Taiwan and China rank at the top in Asia Pacific; Korea, Australia, and Malaysia and Indonesia face significant net outflow pressure.
- At the sector level, technology hardware and semiconductors are expected to receive net inflows of approximately US$6.1 billion; internet/media, healthcare, insurance and financial services, and real estate are expected to face net outflows.
- Historically, added constituents or stocks with increases in free-float adjustment factors typically outperform from announcement to effective date, although part of the excess return may reverse thereafter.
Report interpretation
Overview
This report interprets the results of MSCI's August 2026 Global Investable Market Indexes review and their potential flow implications. The adjustment results were announced after the US market close on August 12 and are scheduled to take effect after the close on Monday, August 31. The report covers emerging markets, developed markets, and multiple regional markets, assessing impacts through index market capitalization, weight changes, constituent adjustments, free-float adjustment factor changes, and potential passive fund flows.
Core views
Proposed MSCI EM Index changes include 44 additions and 55 deletions, while the MSCI World Index includes 8 additions and 37 deletions; within the IMI framework covering large-, mid-, and small-cap stocks, emerging markets will see 91 additions and 183 deletions, while developed markets will see 81 additions and 95 deletions. The MSCI EM Index is expected to have a post-adjustment market capitalization of approximately US$12.1 trillion, up 0.3% from before the adjustment, with two-way weight turnover of approximately 2.2%; the MSCI World Index is expected to have a post-adjustment market capitalization of approximately US$92.3 trillion, down 0.1%, with two-way weight turnover of approximately 1.4%. Regionally, net passive flows in Asia Pacific are primarily directed toward Japan, India, Taiwan and China, while outflows are concentrated in Korea, Australia, and certain ASEAN markets. By sector, technology hardware and semiconductors benefit most significantly, while internet/media, healthcare, insurance and financial services, and real estate face pressure.
Analysis framework
Based on MSCI's announced adjustment proposals, the report compares existing indices with simulated post-adjustment indices in terms of constituents, weights, free-float adjustment factors, and index market capitalization; it combines estimated passive assets under management to calculate buying, selling, and net passive fund flows. Stock selection focuses on names with large estimated net purchases or net sales and high impact relative to one-month average daily trading volume, supplemented by relative-return patterns over the past five years for added/deleted stocks and stocks with changes in free-float adjustment factors before and after index adjustments.
Methodology notes
Adjustments to index constituents, weights, and free-float adjustment factors
Using the proposed outcomes of MSCI index reviews as inputs, the analysis evaluates the impact of constituent additions, deletions, and free-float adjustment factor changes on index weights and allocations by passive tracking funds.
Net passive buying and selling flows
Based on changes in index weights and the scale of passive assets tracking the indices, the analysis estimates potential buying, selling, and net fund flows at stock, sector, market, and regional levels.
Trading effects of index adjustments
The analysis reviews the relative performance over the past five years of added versus deleted stocks and stocks with increased versus decreased free-float adjustment factors around announcements and effective dates to identify historical trading patterns.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- MSCI EM IndexCore emerging-market benchmark in this index review
- Strengths
- Post-adjustment index market capitalization is expected to rise modestly, while Asia Pacific and emerging markets overall are expected to see net passive inflows.
- Weaknesses
- The number of constituent deletions exceeds additions, and some markets and sectors face clear selling pressure.
- Comparison
- Two-way weight turnover is approximately 2.2%, higher than the approximately 1.4% for the MSCI World Index; historically, index-adjustment alpha opportunities in emerging markets have generally been better than those in developed markets.
- Risks
- Performance of additions relative to deletions has already been highly volatile in the current cycle, and momentum reversal may weaken traditional event-trading signals.
- MSCI World IndexCore developed-market benchmark in this index review
- Strengths
- The adjustment scale is relatively moderate, and market depth is typically higher.
- Weaknesses
- Post-adjustment index market capitalization is expected to decline modestly, and additions are significantly fewer than deletions.
- Comparison
- Two-way weight turnover is approximately 1.4%, lower than the approximately 2.2% for the MSCI EM Index.
- Risks
- Historical relative-return opportunities between additions and deletions in developed markets are generally weaker than in emerging markets, and returns may reverse after the effective date.
- Japanese Equity MarketThe Asia Pacific market expected to receive the largest net passive inflow
- Strengths
- Net inflows of approximately US$1.9 billion are expected, making it the largest net-inflow market in Asia Pacific shown in the report.
- Weaknesses
- Actual flows and individual-stock returns depend on final index adjustments and execution by tracking funds.
- Comparison
- The scale of net inflows is higher than for India, Taiwan, and China.
- Risks
- If the market has traded ahead of expected index adjustments, reverse volatility may occur around the effective date.
- Indian Equity MarketA major recipient market of MSCI adjustment-related fund flows
- Strengths
- Net inflows of approximately US$1.4 billion are expected; the table's Aggregate estimate is approximately US$1.426 billion.
- Weaknesses
- At the constituent level, additions, deletions, and free-float adjustment factor changes all occur simultaneously, so return distribution is uneven.
- Comparison
- Estimated net inflows are below Japan's but above those of Taiwan and China.
- Risks
- Passive-flow estimates depend on assumptions regarding asset scale, weights, and trading execution; actual results may differ from estimates.
- Taiwan Equity MarketA major recipient market of MSCI adjustment-related fund flows
- Strengths
- Net inflows of approximately US$1.2 billion are expected; technology hardware and semiconductors are the region's largest estimated inflow sector.
- Weaknesses
- Some fund flows are highly concentrated in semiconductors and related technology stocks, resulting in high sector concentration.
- Comparison
- The scale of net inflows is below Japan and India but significantly above China.
- Risks
- Technology-sector valuations, global risk appetite, and short-term crowded trading may amplify volatility.
- China Equity MarketThe market directly affected by MSCI China constituent, weight, and free-float adjustment factor changes
- Strengths
- Expected to receive approximately US$0.3 billion in net passive inflows, with buying support for some added stocks or stocks with increased free-float adjustment factors.
- Weaknesses
- Divergence across stocks and sectors is significant, with areas such as internet/media expected to face substantial net selling pressure.
- Comparison
- Overall net inflows are lower than for Japan, India, and Taiwan, but the impact relative to trading volume may be greater for certain individual stocks.
- Risks
- Individual-stock passive flows in the report are estimates; pre-announcement positioning, concentrated execution on the effective date, and liquidity differences may all lead to performance deviations.
- Technology Hardware and SemiconductorsThe Asia Pacific sector with the largest estimated inflows from MSCI rebalancing
- Strengths
- Expected to receive approximately US$6.1 billion in net passive inflows, benefiting from constituent and weight adjustments.
- Weaknesses
- Fund-flow opportunities are short-term and may be concentrated in a limited number of high-weight or newly included stocks.
- Comparison
- The inflow scale is substantially larger than for software and services and chemicals and materials; it contrasts with net outflows in internet/media and healthcare.
- Risks
- Changes in sector fundamentals, valuations, and global technology risk appetite may outweigh the short-term impact of index-related fund flows.
Key data
- Effective DateAfter market close on 2026-08-31MSCI announced the August review results after the US market close on 2026-08-12.
- MSCI EM Index Constituent Adjustments44 additions, 55 deletionsStandard index basis.
- MSCI World Index Constituent Adjustments8 additions, 37 deletionsStandard index basis.
- Post-adjustment MSCI EM Index Market CapitalizationApproximately US$12.1 trillion (+0.3%)Two-way index weight turnover is approximately 2.2%.
- Post-adjustment MSCI World Index Market CapitalizationApproximately US$92.3 trillion (-0.1%)Two-way index weight turnover is approximately 1.4%.
- Asia Pacific/Global Emerging Markets Gross Two-way Fund FlowsMore than US$35 billion/US$24 billionEstimated gross two-way trading volume from MSCI core-index rebalancing.
- Asia Pacific/Global Emerging Markets Net Passive Fund Flows+US$2.3 billion/+US$1.0 billionEstimated net inflows aggregated by region.
- Major Asia Pacific Net Inflow MarketsJapan +US$1.9 billion, India +US$1.4 billion, Taiwan +US$1.2 billion, China +US$0.3 billionBased on estimated net passive fund flows in the report.
- Major Asia Pacific Net Outflow MarketsKorea -US$1.0 billion, Australia -US$0.9 billion, Malaysia/Indonesia -US$0.3 billion eachBased on estimated net passive fund flows in the report.
- Major Asia Pacific Sector Net FlowsTechnology hardware and semiconductors +US$6.1 billion; internet/media -US$1.1 billion; healthcare -US$1.0 billionSoftware and services are approximately +US$0.34 billion, while chemicals and other materials are approximately +US$0.21 billion.
- MSCI India Net Passive Fund Flow+US$1.426 billionAggregate basis from the report table, priced as of 2026-08-12.
- MSCI Taiwan Net Passive Fund Flow+US$1.185 billionAggregate basis from the report table, priced as of 2026-08-12.
Impact & implications
Index adjustments will significantly increase trading liquidity and price pressure around the period from the announcement date to the effective date, particularly for stocks included in or removed from standard indices, or those with changes in free-float adjustment factors and low average daily turnover. From an allocation perspective, investors may focus on net-inflow signals in Japan, India, Taiwan and China, as well as fund-flow beneficiaries in technology hardware and semiconductors; meanwhile, short-term selling pressure on Korea, Australia, internet/media, healthcare, financials, and real estate-related names should be assessed cautiously. Historical patterns support relative gains for added stocks and stocks with increased free-float adjustment factors before the effective date, but relative performance in the current cycle has been highly volatile, and historical patterns should not be viewed as a source of certain returns.
Risks
- Potential passive fund flows are model estimates; actual scale is affected by tracking asset size, execution methods, prices, exchange rates, and final index files.
- Index adjustment information may already be partly priced in by the market, and price performance between the announcement and effective dates may not repeat historical patterns.
- Historically, relative gains for added stocks and stocks with increased free-float adjustment factors may partially reverse after the effective date.
- The current cycle has seen sharp volatility consistent with a global momentum reversal, making traditional relative-return signals for additions versus deletions unstable.
- Where individual-stock liquidity is low, estimated fund flows relative to average daily turnover may cause large price volatility and execution deviations.
- Market and individual-stock data in this report are priced as of 2026-08-12; subsequent market changes may affect the conclusions.
What to watch
- The formal effectiveness of MSCI adjustments after the August 31 close, as well as final constituent, weight, and free-float adjustment factor files.
- Whether actual net inflows into Japan, India, Taiwan, and China approach estimates.
- Selling pressure and volume changes in Korea, Australia, Malaysia, and Indonesia around the effective date.
- Fund-flow absorption in technology hardware and semiconductors, and price pressure in outflow sectors such as internet/media and healthcare.
- Trading impact of added, deleted, and free-float adjustment factor-adjusted stocks relative to one-month average daily trading volume.
- The extent of post-effective-date return reversal for additions relative to deletions, and whether the global momentum style continues to reverse.