Morgan Stanley Capital Interna-tional Inc (MSCI) said it will give full weight to Taiwan's stocks in global indexes, and investors may buy about US$4 billion of the island's equities to track the benchmarks, analysts said.
Local companies, which make up the fifth-largest stock market in Asia by value, have 55 percent of their market value represented in the indexes. MSCI said it will increase that to 75 percent at the close of trading on Nov. 30, and to 100 percent next May 31.
With full inclusion, Taiwan would surpass South Korea as the largest market represented in the MSCI Emerging Markets Index, making up 20 percent, based on market values as of June 2.
The island would account for 27 percent of the MSCI All Country Asia-Pacific excluding Japan Index, exceeding both South Korea and Hong Kong, said MSCI in a statement on its Web site.
"It's clearly very bullish for Taiwan, because of the huge amount of quasi index money that will have to go into that market," said Alexander Muromcew, who helps manage US$600 million in global equities as a fund manager for Loomis Sayles and Co in San Francisco. "Unfortunately, it means that money has to go out from some other markets and so, net-net, it's a negative particularly for markets in Hong Kong and South Korea."
Muromcew said that Loomis Sayles may increase its investment in Taiwan stocks after the announcement.
The increase results from the scrapping last July of restrictions on the amount of stock that overseas investors can hold. In April, MSCI started a consultation on whether to grant Taiwan greater representation.
Taiwan Semiconductor Manu-facturing Co and United Microelectronics Corp will attract most of the money that index-tracking funds may put into the country, said Alex Ypsilanti, Merrill Lynch and Co's Hong Kong-based head of Asia Pacific ex-Japan derivatives strategy. The chipmakers are two of the nation's largest companies by market value.
Goldman Sachs Group Inc on June 7 recommended clients buy more of the island's equities and forecast that a weighting increase would help the benchmark TAIEX index rise as much as 30 percent in a year.
"The move will mean more inflows into the Taiwanese market by foreign investors," said Francesco Rizzuto, a Milan-based fund manager at Nextra Investment Management SGR SpA, who helps manage 90 billion euros (US$109 billion) in assets.