FTSE leaves Taiwan's market status unchanged

The FTSE Group said yesterday that Taiwan and South Korea again fell short of its requirements for developed-market status as the two countries failed to meet its expectations in terms of liberalizing their foreign exchange markets.

"No changes will be made to the current country classification in 2006," the FTSE Group, a joint venture between the Financial Times and the London Stock Exchange, said in a statement released yesterday afternoon.

The group classifies markets as developed, advanced emerging and secondary emerging.

The Taiwanese and South Korean markets will be reassessed in the group's next review in September next year, and will stay on its watchlist for a minimum of 12 months before any change is made to their status, the British index compiler said. No actual change to any country's classification is expected to be carried out before March 2007, it said.

Despite its impressive efforts to improve market conditions for foreign investors, "Taiwan has not met sufficient progress in ensuring a free and well-developed foreign exchange market, simplifying its registration process for foreign investors and further improving the process for off-exchange transactions," FTSE said.

Meanwhile, China's A-share market, where investors trade shares denominated in Chinese yuan, will also stay on the watchlist, as it failed to meet the requirements for inclusion as an emerging market in the FTSE Global Equity Index Series.

The announcement came after the close of the Taiwanese stock market. The benchmark TAIEX dropped 20.38 points, or 0.33 percent, to 6,148.70 yesterday as investors marked time ahead of the FTSE report.

The Financial Supervisory Commission (FSC) said in response to the report that it will keep implementing reform plans to sharpen the competitive edge of the Taiwanese market following a series of restructuring measures executed in the past year, including the relaxation of stock lending, deferred clearing and settlement and simplification of foreign capital registration.

The commission seemed to have been expecting FTSE's decision to not upgrade the Taiwanese market's status. FSC spokesman Lin Chung-cheng (林忠正) said last week that, "We tend to be conservative about the possibility of being upgraded to developed-market status this year, despite our efforts that have helped to improve three of the six criteria we did not meet last year."

Taiwan failed to qualify for its first possible upgrade in September last year, with FTSE saying that the market had not met 6 out of 21 criteria required to be promoted to developed-market status.

"We do not expect the failure to have a significant impact on the local market this time, as FTSE indices are less influential than MSCI indices among overseas investors," said Kelvin Ng (吳宏圖), chief investment officer at Allianz Global Investors Taiwan Ltd.

JF Asset Management Taiwan Ltd's managing director George Hou (侯明甫) said that most investors had not expected an upgrade this year.

"Since no changes were made to any other countries' rankings, the impact on the local bourse should be minimal," Hou said.