Russell Reconstitution Revamps Reveal Global Realignments

These lists offer an indication of how equity markets in 65 constituent countries fared during the past year’s global recession—because the index reflects the global market and some 10,000+ stocks ranked by market capitalization, according to a press release.

Developed Meants

Looking at the Russell Global ex-U.S. Index, the countries with the greatest number of net additions set for inclusion are:

• Israel (+57),
• Taiwan (+37),
• Republic of Korea (+25),
• Hong Kong (+20),
• India (+19),
• China (+19),
• Turkey (+17), and
• Malaysia (+12).

“The bottom line is that emerging market nations are becoming more developed,” said Rob Balkema, portfolio analyst for Russell Investments. “A decade ago, countries like Korea, Israel, Taiwan and China were a far cry from how they operate today, and growth projections for the larger emerging nations like China are quite high for the next 25 years.”

However, the lists show the U.S. component of the Russell Global Index (Russell 3000 Index) leading all other countries with 276 additions. The U.S. broad-market benchmark shows a net increase of 121 additions resulting from this year’s reconstitution, according to the announcement.

The lists of additions to the global index and separate lists for the U.S. broad market and U.S. micro-cap segment are posted here.

Diminished Presences

Overall, the decreases in eligible securities appear more concentrated in developed economies, according to Russell. Countries in the Russell Global Index with the greatest number of net deletions are:

• the United Kingdom (-59),
• Canada (-42),
• Australia (-41), and
• Japan (-38).

“Japan in particular is an export economy and as global growth has slowed dramatically over the past year and exports have decreased, such markets have become a smaller slice of the global pie,” said Balkema, in the press release.

The lists confirm five countries that previously were part of the global index either are ineligible for the index due to risk scores or they have no securities that qualify for membership this year. These countries are:

• Pakistan (35 in 2008),
• Ukraine (16 in 2008),
• Vietnam (10 in 2008) (see “Vietnamese Firms Make Russell Index Cut“),
• Latvia (1 in 2008), and
• the Slovak Republic (1 in 2008).

Regarding those countries which previously had no stocks in the index, none of them appear on the list of additions this year.

“The problems with the banking systems in some Eastern European nations has caused many of the smaller countries to suffer precipitously,” said Balkema. “Countries like Latvia or Slovakia simply don’t have the capital and strong governing bodies to provide stability in the turbulence of the last 12 months.”

Past Perceptions

Looking at index reconstitution data from the past decade reveals some distinct patterns, according to Russell, which notes that several countries, such as China (27 in 1999, 309 in 2009), the Republic of Korea (123 in 1999, 327 in 2009), and Taiwan (252 in 1999, 397 in 2009) “have seen considerable increases in the number of stocks in the Russell Global Index, which continued this past year.”

According to the announcement, others such as Australia (136 in 1999, 316 in 208, 258 in 2009) and Canada (275 in 1999, 476 in 2008, 404 in 2009) have also “seen considerable growth in the number of stocks in the global index over the past decade, though this year they experienced among the largest drops in the number of stocks in the index.”

Russell reconstitutes its family of global indexes annually at the end of June in order to assure they systematically and accurately reflect current market realities. For details on Russell’s index reconstitution, visit their Web site. Russell’s indexes are unmanaged and cannot be invested in directly.