MSCI reweighting buoys TAIEX

Encouraged by Morgan Stanley Capital International's (MSCI) move to lift the weighting of Taiwan stocks in its indices next month, the TAIEX rose 220.29 points, closing at 5,877.77 points yesterday on turnover of NT$101.1 billion.

Analysts say the effect of the move could last for several weeks. However, the recall motion against President Chen Shui-bian (陳水扁) could compromise investors' interest to buy. Therefore, the TAIEX is likely to consolidate after reaching 6,000 points, analysts say.

Morgan Stanley Capital International announced on Monday that the weighting of Taiwan stocks would be raised from 65 percent to 80 percent in its two indices, MSCI Emerging Market Free Index and MSCI All Country World Index, effective from Nov. 30.

The Taiwan government's decision last month to raise the ceiling for Qualified Foreign Institutional Investors (QFII) from US$1.2 billion to US$1.5 billion and its promise to simplify the application procedures for QFIIs were the major factors that made the MSCI decide to raise Taiwan stocks' weighting in its indices, said MSCI executives on Monday.

MSCI was originally to raise Taiwan stocks' weighting in May, but after the new administration took over MSCI decided to postpone its decision. Part of its reason was that Taiwan needed to first deregulate its capital market to foreign investors and welcome their participation in equities market.

Foreign investors bought about a net of NT$8.7 billion worth of shares on Monday. In the last 15 trading days, foreign investors have bought a net of NT$44.5 billion. Foreign investors are actively buying back Taiwan shares that were sold in the past five months. Analysts expect the buy back activity would continue in the next few weeks.

"Since the majority of hundreds of offshore equities funds have been using MSCI's indices as their benchmark on evaluating the performance of their fund managers, these fund managers have to maintain comparable weighting as MSCI's indices in order to keep up with their peers," said David Peng (彭宏逖), managing director of Mercury Fund Management Taipei.

The news encouraged both foreign and local investors buying local shares yesterday, while the Legislative Yuan was amending related regulations on the recall motion against the president.

The market's near-term prospects are still mixed, however, due mostly to the possible recall motion against Chen.

The Legislative Yuan passed the regulation related to the recall against the president and vice president yesterday.

Analysts said the news from MSCI could help the TAIEX move back to above 6,000 points in the next few days provided the recall is not immediately proposed.

"According to previous experience, the good news brought by MSCI could push the TAIEX up 1,000 points or more," said Liu Kai-pin (劉凱平), president of SinoPro Securities Investment Consulting. "But with the instability of domestic politics generated from the recall motion, its bullish effect would be discounted. After the TAIEX moved up to 6,000 points, it would encounter strong selling pressure."