A limited number of benchmark indices cover the emerging stockmarkets of Europe, Africa and the Middle East. Two major indices have been developed by ING Baring and Nomura. An MSCI Index for the region has also been introduced recently.

ING Baring has developed a number of indices that aim to cover eastern Europe in one form or another. A series of country indices has also been developed. For a country to be included in one of ING Baring's regional indices, it must have a GDP per capita of $400 and a market trading value of $2 billion, attained in one of the past three years. The Extended BEMI European Index features South Africa, Portugal, Turkey, Greece, Poland and Jordan. ING Baring has developed a Special Eastern Europe Index which includes the following weightings: Czech Republic (14.4%, 23 stocks), Hungary (30.2%, 19 stocks), Poland (21.5%, 39 stocks), Russia (33.9%, 15 stocks). The composition has changed significantly over the past 18 months. In August 1997, for example, the Czech Republic weighting stood at 56%, with Slovakia at 6% and Russia at zero.

Nomura has significantly developed its NRI East European Index. Over a year ago the index composition focused on the Visegrad countries but has now been extended and probably represents the most sensible regional benchmark.The table shows the present composition.

Are these benchmarks helpful to the institutional player? In looking at market entry routes through mutual funds, the answer is probably no" as few funds follow the NRI Eastern Europe benchmark very closely. A characteristic of fund managers investing in the region has been the rapidity of asset allocation swings. Liquidity drives the markets and to a large degree the strategies of the fund managers. Individual funds show significant deviations from the average and investors can usually expect their portfolio to be actively managed without too much reference to any benchmark. If anything, the fund managers look over their shoulders at the competition and measure their bets in relative terms. Paul Forsyth"