Tue, Mar 09, 2004 - Page 10 News List

FTSE Group to complete its review of stock market

FINANCE If FTSE decides to upgrade Taiwan's market to `developed' status, foreign fund managers will be more inclined to buy the shares of local companies

BLOOMBERG

FTSE Group is expected to announce the results of its study on market classification in the week of March 22, Christine Huang, the index compiler's Hong Kong-based regional sales manager, said in a phone interview.

FTSE will also release an implementation plan that may include raising Taiwan and South Korea to developed market status, Huang said.

Money managers who measure their performance against the FTSE's indexes are likely to buy stocks of companies that are added and sell those that are deleted. Some US$2.5 trillion worth of funds track the FTSE's indexes, according to Chris Lobello and Dodo Cheng, analysts at CLSA Asia-Pacific Markets in Hong Kong.

The index compiler, which is owned by the London Stock Exchange and Pearson Plc's Financial Times newspaper, adds or subtracts members from its FTSE Global Equity Index series of benchmarks to ensure they comprise 95 percent of the stocks globally that are available to investors.

In South Korea, NCsoft, the nation's largest online game maker, Hankook Tire, the country's biggest tire maker, and Daewoo International Corp, a trading company, may be added, according to a report by LG Investment & Securities Co last month.

Huang said there will be fewer deletions from FTSE's indexes than additions.

Increased buying

An upgrade of South Korea and Taiwan by FTSE, a move also being considered by its competitor Morgan Stanley Capital International Inc, may prompt some investors to consider those countries' markets as less risky and lead to increased foreign investment in their stocks, analysts have said.

The index compiler has three country classifications: Developed, Advanced Emerging and Emerging. Taiwan and South Korea, home to Asia's fifth- and sixth-largest stock markets by value, are currently classified as Advanced Emerging.

"Even small tweaks to how the US$2.5 trillion benchmarked against the FTSE worldwide is spread around mean big differences for Asia," CLSA's Lobello and Cheng wrote last month.

FTSE wrote in November in a consultation paper sent to clients that South Korea and Taiwan "would be put on the index compiler's so-called Watch List and with the possibility that the two markets may be promoted to developed status in 2005."

As an Advanced Emerging market, shares of South Korean and Taiwanese companies are currently included in 24 FTSE indexes used by international money managers, according to LG Investment.

More indexes

A move to Developed Market status would raise the number to 30 indexes, including the FTSE's All-World Developed Index.

Presidential elections in Taiwan this month may cause the FTSE to delay its decision to upgrade the status of Taiwan's stock market, some investors said. The election is scheduled for March 20 and the new president will take office on May 20.

President Chen Shui-bian's (陳水扁) ruling Democratic Progressive Party will hold an election-day referendum on boosting defenses against attack by China, which is opposed by opposition candidate Lien Chan (連戰). China called the vote a step toward independence.

Investors expect "no changes before May, when the next Taiwan president take office," said Jerry Chen, who helps oversee US$640 million in Taiwanese stocks at First Global Investment Trust Co (元大投信) in Taipei. "FTSE is likely to wait until all the political influences settle down."

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