So Morgan Stanley Capital International (MSCI) has decided to revise the Limited Investability Factor (LIF) currently applied to its Taiwan Index. Economists and fund managers operating in Taiwan can barely contain their enthusiasm and wax eloquent on capital inflows and index-tracking funds. Estimates of the dollar-value in investments the change will garner Taiwan's stocks range from a conservative US$2 billion to a hefty US$70 billion.
That much has been established.
But the question remains: Why is this somewhat abstruse technical revision considered an important success for Taiwanese businesses and policymakers?
In terms of international finance, MSCI's decision to grant full weighting to Taiwan's stocks is considered a profound change in the status of Taiwan's markets, because it means that the company no longer views Taiwan's stocks as over-valued.
This is essentially an endorsement of recent reforms to Taiwan's financial regulation system, particularly in regard to restrictions on overseas investment.
In MSCI's press release announcing the revision, the benchmark provider said "significant developments have taken place to relax foreign investment restrictions in Taiwan over the past few years."
One of the developments that MSCI was referring to was the government's decision to scrap the qualified foreign institutional investor (QFII) program on Oct. 1 last year. This program limited to US$3 billion the total amount foreign institutions could invest in Taiwan. The QFII program, implemented in 1991, was widely credited with helping the nation to avoid some of the painful convolutions of the region's stock markets during the 1997 Asian financial crisis, but it was also considered a major barrier to overseas investment.
Repealing the QFII program was one of the promises made by President Chen Shui-bian (陳水扁) as part of his administration'sefforts to deregulate the nation's financial markets.
As the QFII program ended eight months ago, last Saturday's announcement by MSCI was hardly unexpected.
This was reflected in the relatively lukewarm response among investors -- particularly foreign investors -- on Monday, June 21, the first day of trading after the announcement was made. The TAIEX finished the day's trading down 0.23 percent to close at 5,556.54 points. But traders rallied later in the week, and the nation's benchmark ended the week's trading up 4.2 percent week-on-week, at 5,802.55 points.
Aside from the short-term impact on the nation's bourses, most analysts predict that the revision will have a beneficial medium and long-term impact. Little wonder, as about US$3 trillion is benchmarked to MSCI's indexes worldwide, according to the firm's estimates.
Merrill Lynch estimates that approximately 13 percent of this -- US$400 billion -- is from passive index-tracking funds. The company believes that US$4 billion from such funds will flow into Taiwan commensurate with the removal of the LIF.
Active funds will contribute a greater sum to the TAIEX. The total adjusted market capitalization of the TAIEX is approximately US$352 billion, according to figures provided by the Taiwan Futures Exchange. Merrill Lynch expects "US$31 billion from active/semi-active funds," around 8 percent of the benchmark's capitalization, will flow into Taiwan.
The LIF removal will be a two-stage process, with the first revision occurring on Nov. 30, when MSCI will change the weighting of its Taiwan Index from 55 percent to 75 percent. The final revision will be on May 31 next year, when the weighting of the Taiwan Index will be removed and the benchmark will fully reflect the listed prices of Taiwan's securities.
The MSCI Taiwan Index is compiled by including 85 percent of the market capitalization -- or total dollar value of a company's outstanding shares -- of each industry in the Global Industry Classification Standard.
According to MSCI's Web site, this method of compiling a country index means that the "economic diversity of the market is reflected" in the index.
One would assume that if this were the case, removing the weighting from the Taiwan Index would result in gains for Taiwan's shares, and indeed, Goldman Sachs Group Inc projects that the change will push the TAIEX up 30 percent -- well over the 7,000 point mark -- by next May.
However, Merrill Lynch singled out 15 companies that it predicted would benefit the most from MSCI's move. Among tech stocks, the company believes Taiwan Semiconductor Manufacturing Co (
In the financial services industry, Cathay Financial Holding Corp (
One of the most publicized aspects of MSCI's revision is the fact that Taiwan will become the country with the largest representation in two of MSCI's regional equity indexes: the MSCI Emerging Markets Index and the MSCI All-Country Far East ex-Japan Index. The nation currently ranks third in terms of representation on both of these indexes; behind South Korea and South Africa on the Emerging Markets Index, and behind South Korea and Hong Kong on the Far East Index.
But on May 31, 2005, Taiwan will officially become No. 1, albeit in a rather obscure manner.
Stephen Garrett, a 27-year-old graduate student, always thought he would study in China, but first the country’s restrictive COVID-19 policies made it nearly impossible and now he has other concerns. The cost is one deterrent, but Garrett is more worried about restrictions on academic freedom and the personal risk of being stranded in China. He is not alone. Only about 700 American students are studying at Chinese universities, down from a peak of nearly 25,000 a decade ago, while there are nearly 300,000 Chinese students at US schools. Some young Americans are discouraged from investing their time in China by what they see
MAJOR DROP: CEO Tim Cook, who is visiting Hanoi, pledged the firm was committed to Vietnam after its smartphone shipments declined 9.6% annually in the first quarter Apple Inc yesterday said it would increase spending on suppliers in Vietnam, a key production hub, as CEO Tim Cook arrived in the country for a two-day visit. The iPhone maker announced the news in a statement on its Web site, but gave no details of how much it would spend or where the money would go. Cook is expected to meet programmers, content creators and students during his visit, online newspaper VnExpress reported. The visit comes as US President Joe Biden’s administration seeks to ramp up Vietnam’s role in the global tech supply chain to reduce the US’ dependence on China. Images on
New apartments in Taiwan’s major cities are getting smaller, while old apartments are increasingly occupied by older people, many of whom live alone, government data showed. The phenomenon has to do with sharpening unaffordable property prices and an aging population, property brokers said. Apartments with one bedroom that are two years old or older have gained a noticeable presence in the nation’s six special municipalities as well as Hsinchu county and city in the past five years, Evertrust Rehouse Co (永慶房產集團) found, citing data from the government’s real-price transaction platform. In Taipei, apartments with one bedroom accounted for 19 percent of deals last
US CONSCULTANT: The US Department of Commerce’s Ursula Burns is a rarely seen US government consultant to be put forward to sit on the board, nominated as an independent director Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), the world’s largest contract chipmaker, yesterday nominated 10 candidates for its new board of directors, including Ursula Burns from the US Department of Commerce. It is rare that TSMC has nominated a US government consultant to sit on its board. Burns was nominated as one of seven independent directors. She is vice chair of the department’s Advisory Council on Supply Chain Competitiveness. Burns is to stand for election at TSMC’s annual shareholders’ meeting on June 4 along with the rest of the candidates. TSMC chairman Mark Liu (劉德音) was not on the list after in December last