MSCI EAFE index is a stock market index that measures equity market performers in developed countries outside the North American continent. This index is maintained by MSCI Barra. The MSCI EAFE index ranks equity market securities according to their market capitalization. This allows investors to look at their own investments in developed markets and see how they are doing in comparison. This, in turn, helps investors decide which investments are worth their time and which investments should be discarded. While MSIC EAFE index is not foolproof, it has been around for over 30 years, making it the oldest and the most reliable international stock market indexes available.

Understanding Stock Market Indexes

Stock market indexes are market analysis tools that examine sections of the stock market. The stocks that make up each index share a certain common theme, for example, a nation of origin, a type of industry. The indexes track the performances of their groups of stocks, giving the investors a chance to see how well they are doing. This, in turn, allows investors to make comparisons to their own stocks and see if they are lagging compared to the indexes, ahead of the indexes or at the same level as the indexes. This allows investors to decide whether or not the stocks are worth keeping. The indexes also serve as indicators of the health of whatever segment of the market they specialize in. For example, if all the stocks in the index that is made up of stocks issued by oil-producing companies suddenly plummeted in value, the investors would have every right to assume that oil industry is experiencing significant problems and alter their investment strategies accordingly.

Understanding MSCI EAFE Index

MSCI EAFE stock market index is made of stocks from over 1000 companies. Most of those companies are based in Japan and United Kingdom. The MSCI EAFE index stocks are weighted according to market capitalization. This means that its value is measured against the value of all the stocks that make up MSCI EAFE. Once they are weighted, they are ranked from largest to smallest. This allows investors to figure out which stocks are profitable and which stocks are lagging.

Advantages of the MSCI EAFE Index

MSCI EAFE was the first international stock market index. Its performance has been tested through over three decades worth of changing economic conditions, and it remained a largely reliable index throughout. As the result, it has become one of the widest-used, most reliable stock market indexes in the world. It tends to be the index of choice for investor who invested in stocks that belong to foreign companies and domestic companies that operate internationally. MSCI EAFE gives investors the perspective on stocks of corporations throughout most of the developed world, offering more data than most other international stock exchanges.

Disadvantages of the MSCI EAFE Index

The biggest drawback of MSCI EAFE index is that it was designed around the financial conditions in late 1960s. Mainland China and India are noticeably absent from this index, as are the oil-rich Middle Eastern countries. It also does not account for the creation of the European Union, which linked the economies of most developed in developing European countries in the way that had noticeable impact on every economy involved.