GDP Index Concept
While traditional regional or global indices are weighted by market capitalisation, GDP-weighted indices assign country weightings based on a country's gross domestic product (GDP). It is currently applied to the MVIS GDP Africa Index.
Indices with conventional weighting schemes have a strong focus on the exchange-listed segments of equity markets, and thus tend to underweight countries with less-developed capital markets such as emerging markets. Country allocation in a GDP-weighted index therefore might look significantly different to that of an index that utilizes market cap weightings.
The GDP index concept provides an alternative, thus complimentary, view of markets.
The graphic below shows the difference between countries weighted by Total Market Cap or by their GDP.