Morgan Stanley Capital International Europe, Australia, Far East Index

, the EAFE Index reflects the performance of all major stock markets outside North America. It is a market-weighted index composed on 1,041 companies representing the stock markets of Europe, New Zealand, and the Far East. It is considered the key “rest-of-the-world” index for U.S. investors, much as is the

Dow Jones Industrial Average

for the American market. It is used as a guide to see how U.S. shares are faring against other markets around the globe. It also serves as a performance benchmark for international mutual funds that hold non-U.S. assets. Morgan Stanley has created its own indexes for 18 major foreign markets. To make the EAFE Index, those country indexes are weighted to reflect the total market capitalization of each country’s markets as a share in the world market. The index’s base of 100 is for January 1, 1970. The index is quoted two ways: one in local currencies and a second in the U.S. dollar. This shows how American investors would fare addressing both share price and currency fluctuations. The EAFE Index can be found in newspapers such as


. When the EAFE Index is performing better than the U.S. markets, it may be time for investors to shift money overseas. Conversely, when U.S. market indexes are doing better than the EAFE Index, a shift away from foreign assets may be in order.