FTSE, MSCI may delay decision on Taiwan's status

FTSE Group and Morgan Stanley Capital International Inc may delay decisions on Taiwan's stock market status after the Chinese Nationalist Party (KMT) challenged the legality of President Chen Shui-bian's (陳水扁) re-election, ABN Amro Bank NV said.

FTSE Group, whose indexes are used as benchmarks for some US$2.5 trillion in funds, may postpone a decision on whether to reclassify Taiwan as a developed market in its global indexes because of the election dispute, the brokerage said in a report.

The index provider, which is scheduled to announce tomorrow the results of its study on market classification, said last week it hasn't decided on the status of Taiwan in its benchmarks.

MSCI, which has some US$3 trillion in assets benchmarked to its indexes, may also postpone an announcement on increasing Taiwan's so-called "limited investability factor," or the percentage of a market's shares represented in MSCI's indexes, from 55 percent, ABN Amro said.

Toshiaki Matsumae, head of MSCI's Tokyo office, said no discussions about changes to Taiwan's status had taken place.

The TAIEX plunged 6.7 percent yesterday, its biggest percentage decline in eight years. Only one stock of the 644 stocks traded on the Taiwan Stock Exchange gained.

Separately, Goldman Sachs Group Inc downgraded Taiwanese banks, including Chinatrust Financial Holding Co (中信金控) and Mega Financial Holding Co (兆豐金控), because the country's disputed presidential election may lead to political instability.

"We believe that the financial sector, given its domestic demand focus and traditional political sensitivity, could get hit harder than the overall market," Goldman said in a research report yesterday.

The strong economic outlook that underpins the positive performance of Taiwanese banks may fall apart if the current crisis lasts more than a few weeks, the report said. The nation's GDP rose 5.2 percent in the fourth quarter, its biggest gain in a year, and the government predicts that pace of growth will be maintained in the January-March period.

Goldman, the world's largest underwriter of stock sales, downgraded its investment recommendation on Mega Financial, the nation's second-biggest financial services provider, to "In-Line," from "Outperform," lowering its target price to NT$23.10, from NT$27.00.

The New York-based brokerage also cut its recommendation on Chinatrust Financial, the country's sixth biggest financial service company, to "In-Line," from "Outperform," lowering the target price to NT$40.0, from NT$42.0.

Mega shares fell NT$1.5 to NT$20.8 and Chinatrust declined NT$2.7 to NT$36.8 on the TAIEX.