The stock markets in Taiwan and South Korea may be upgraded to so-called developed status by FTSE Group, giving them more of the US$2.5 trillion in funds that track the index provider's global benchmarks.
Taiwan and South Korea, home to Asia's fifth- and sixth- largest stock markets by value, will be added to the FTSE's "Watch List" and may be elevated from advanced-emerging status as early as next year, FTSE said on its Web site.
FTSE classifies markets as developed, advanced emerging and emerging. Upgrades may prompt some fund managers to view shares in those markets as less risky. Adding Taiwan and South Korea to FTSE's watch lists may also prompt its larger rival, Morgan Stanley Capital International Inc, to follow suit.
Taiwan and South Korea "are getting pretty close to meeting the same standards that you would expect to see in some of the developed markets around the world," Mark Makepeace, FTSE's chief executive, said in an interview.
"We are saying to investors: begin to plan," he said.
FTSE's indexes are benchmarked by US$2.5 trillion in funds globally, according to CLSA Asia-Pacific Markets.
China's A share market, which is denominated in the Chinese yuan, was added to FTSE's list of candidates for inclusion in its global benchmarks. The index provider said in November it may include China's A shares as the country's market-opening program allows more money managers access to its stocks.
China allowed overseas investors with at least US$10 billion in assets and US$50 million to spend to buy A shares, convertible bonds and mutual funds for the first time last year.
FTSE's change will prompt "a similar move in the MSCI because their analyses are based on similar factors," said Kim Hong Sup, head of research at LG Investment Trust Management Co in Seoul, which manages the equivalent of US$4.3 billion of Korean equities and bonds. Kim spoke before the changes were announced.
Toshiaki Matsumae, head of MSCI's Tokyo office, said Monday discussions on Taiwan's status haven't taken place.
Makepeace said that the dispute over the results of Taiwan's presidential election wouldn't alter FTSE's decision.
Under advanced emerging status, South Korean and Taiwanese companies are included in 24 FTSE indexes used by global money managers, according to LG Investment & Securities Co.
A move to developed market status would raise the number to 30 indexes, including the FTSE's All-World Developed Index.
FTSE earlier this month added 13 stocks from South Korea, the most from any Asian market, to its FTSE All-World Index after its annual review of Asian companies outside of Japan. The FTSE All-World covers 48 countries and includes more than 2,700 stocks.
A change in the status of markets in Taiwan and South Korea is overdue according to Kim.
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