MSCI’s plans to include China’s A shares in its emerging market index will not have an imminent impact on the local bourse, which will remain attractive to foreign funds due to strong corporate governance and stable dividend payouts, Taiwan Stock Exchange Corp (TSEC) and analysts said yesterday.
MSCI, a global investment index closely tracked by market analysts, is reportedly in talks with Chinese securities and currency regulators to include A shares — specialized yuan denominated shares traded on the Shanghai and Shenzhen stock exchanges — in its emerging market index.
The move would lead foreign funds of up to NT$1 trillion (US$33.5 billion) to pull out of Taiwan once MSCI trims the weighting of Taiwanese shares from their current 10.47 percent to 9.3 percent, Chinese media said.
The Taiwan Stock Exchange said in a statement it could not confirm the accuracy of the reports, but voiced confidence that local shares would emerge from the weighting adjustment unscathed.
Foreign funds presently account for 32.82 percent of the TAIEX’s capitalization, up from 28.98 in 2008, TSEC said.
The trend took place even though MSCI had increased the weighting of Chinese shares during the same period and corresponded with an increase in foreign fund inflows from US$124.71 billion to US$165.76 billion, the stock exchange said.
The statistics supported the attractiveness of Taiwanese shares that should continue to hold up given their relatively high yield and strong corporate governance even if the reported weighting adjustments materialize, TSEC said, adding that it could take at least one year for MSCI to remove legal barriers for the inclusion of China’s A shares.
Currently, the MSCI emerging market index has a China sub-index with components mostly listed offshore such as China concept shares traded on the Hong Kong bourse.
David Chu (儲祥生), chairman of state-run Hua Nan Securities Co (華南永昌投顧) said that China may provide swift approval for the MSCI plan that would requires easing of restrictions governing fund inflows.
However, “China is cautious and slow in granting the qualified foreign institutional investor’s [QFII] status that is necessary for onshore stock investments in China by foreign funds,” Chu said.
Drastic deregulation could unleash an influx of foreign funds and push up the Chinese currency and raise inflationary pressures while weakening Chinese exports, Chu said, adding that he does not foresee such a change in the near future though it may take place in the long run.
MSCI would spread out the weighting adjustments across emerging bourses rather than cut holdings on Taiwan alone to carry out the inclusion if it becomes true, Chu added.
However, the TAIEX is likely to consolidate with a downward bias this week after rising 1.79 percent to 7,930.8 on Friday, limiting room for advancement before hitting the 8,000-point mark, Chu said.
Allianz Global Investors Taiwan (德盛安聯證券投信) echoed Chu’s observation, saying tragic incidents in China and in the US would weigh on market sentiment.