Index Fund Versus Hedge Fund

I've just read Buffet's Big Bet from Fortune Magazine.

Warren Buffet, the world's richest man, claimed that he was willing to bet one million dollars that ten hedge funds cannot beat an S&P500 index fund from Vanguard.

A hedge fund from New York called Protege took this bet up. If Protege wins the bet, the money will go to Absolute Return for Kids, an international charity that helps children. If the hedge funds from Protege do not beat the S&P500, the money will go to Girls Incorporated of Omaha.

What I'm unsure about is why Buffet chose the S&P500 index. Buffet has said many times that he believes the future of the American economy is bleak. He claims that he is now looking for opportunities outside of America. E.g. he made a lot of money buying stocks in PetroChina, a company many accuse of human rights violations in Darfur, Sudan. My understanding of hedge funds is that the hedge fund managers have a lot of freedom to invest the money however they want to invest it without the burden of having to comply with too much regulation. Therefore, if Buffet believes America is in for a bleak economic future, he was unwise to use the S&P500 index as a combatant against the hedge funds. Instead he should have used the MSCI World Index.

Today the US economy makes up about 40 per cent of the world economy, which is very significant. However, in the future, emerging markets are expected to rise. Hedge funds have the freedom to invest in these emerging markets while the index fund that tracks the S&P500 cannot.