Morgan Stanley Capital International Inc’s (MSCI) decision to place Taiwan under review for a possible upgrade to a developed market was warmly received by government officials and stock analysts, who expect the reclassification to further galvanize the local bourse.
Taiwan Stock Exchange (TWSE) chairman Schive Chi (薛琦) said the potential upgrade would prompt more funds at home and abroad to join the equity market.
Giving South Korea as an example, Schive said foreign capital inflow rose from US$8 billion to US$16 billion after the UK’s FTSE upgraded it to a developed market. MSCI is expected to publish the review outcome in June next year, he said.
The Geneva-based MSCI announced on Monday it was considering upgrading Taiwan’s status from emerging market to a developed economy on improved market reforms.
In a statement on its Web site, MSCI said Taiwan has introduced several positive market reform measures in recent months, including the implementation of a new settlement cycle.
The index compiler will ask investors’ opinions on their experience following these reforms, adding that Taiwan meets the economic development requirement as well as size and liquidity requirements under the current market classification for developed markets, the statement said.
Schive said the lack of full convertibility of the NT dollar and restrictions linked to foreign institutional investors’ identification system were the main barriers to the reclassification of Taiwan’s status.
Although the matter falls outside his responsibility, Schive said he would do his best to help remove obstacles.
“The pressure is good [for Taiwan]. It’s like a review for a potential promotion from the little leagues to the majors,” Schive said.
Winson Wang (王榮旭), an analyst at Marbo Securities Consultant Co (萬寶證券投顧), said foreign investors would allocate more funds it the country’s status were upgraded.
“Foreign investors favor developed markets over emerging ones because the latter are considered more volatile and vulnerable,” Wang said by telephone.
“That explains why foreign funds pulled out of emerging markets following the financial crisis last year,” he said.
Shea Jia-dong (徐嘉棟), chairman of the Taiwan Academy of Banking and Finance, said the upgrade was welcome as it could enhance the nation’s financial image while subjecting the stock market to greater foreign influence if foreign investors became more active.
But an unnamed manager at a foreign fund said an upgraded status could mean more competition, posing a challenge if the local bourse failed to attract foreign funds.
The fund manager said it was too early to talk about the positive impacts on the local bourse, as it remained unclear whether the country’s status would be changed.
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