A move by MSCI Inc to cut Taiwan’s weighting in two of its major indices is expected to prompt foreign institutional investors to remit about NT$1.1 billion (US$37.49 million) out of the nation, an estimate by the Financial Supervisory Commission (FSC) showed.
A fund drain following MSCI’s latest weighting cut was expected to hit about US$38 million, Securities and Futures Bureau (SFB) Chief Secretary Chien Hung-ming (簡宏明) said before the start of the Lunar New Year holiday last week.
However, the fund outflow was unlikely to have an adverse impact on the local equity market, as the money is dwarfed by NT$1.37 trillion in market capitalization owned by foreign institutional investors, Chien said.
MSCI announced on Tuesday that after a quarterly index review it had decided to cut Taiwan’s weighting in the MSCI Emerging Markets Index by 0.01 percentage point to 11.47 percent, and its weighting in the MSCI All-Country Asia ex-Japan Index by 0.01 percentage point to 13.30 percent.
Taiwan’s weighting in the MSCI All-Country World Index was cut by 0.01 percentage point to 1.38 percent, it said.
MSCI conducts index reviews in February, May, August and November every year.
Its latest adjustments are scheduled to take effect after the Taiwan Stock Exchange closes on Feb. 27.
The last trading session of Taiwan’s stock market ahead of the Lunar New Year holiday was Monday last week, so there was no immediate reaction from the market.
The TAIEX closed up 0.48 percent that day at 10,421.09 points on the back of a higher Wall Street.
Trading is scheduled to resume on Wednesday.
MSCI’s adjustments in Taiwan’s weighting are no longer the only factor moving local share prices at a time when the TAIEX is trading above 10,000 points, with local economic fundamentals growing at a stable pace on the back of solid global demand, JPMorgan Asset Management Taiwan Ltd (摩根資產管理) executive director James Yeh (葉鴻儒) said.
Yeh said that he expected the companies listed on the Tawain Stock Exchange to report a 10 percent year-on-year increase in profit for this year, which could make their shares attractive to foreign investors.
The average dividend yield of Taiwan’s equities — the ratio of a company’s dividend payout to its share price — have been ranging about 4 percent, another factor boosting foreign institutional buying interest in local shares, Yeh added.
Foreign institutional investors make up about 40 percent of the total market value of Taiwan’s equity market in reflection of the nation’s continued efforts to boost the stock market’s globalization, he said.
Such efforts in globalization are expected to encourage foreign investors to move more funds into Taiwan, he said.
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