The FTSE Group, a joint venture between the Financial Times and the London Stock Exchange, confirmed yesterday that Taiwan and South Korea were officially added to its Watch List, despite market expectation for an official status upgrade.
But these two markets will be reviewed next year for a possible upgrade to developed market status, according to the London-based index provider.
"No changes will be made to the classification [designation as developed or emerging markets] of any countries in the FTSE Global Equity Index Series during 2005," the FTSE Group said in a statement published on its Web site.
"No countries currently meet the criteria to be moved to a new category or to join the FTSE Global Equity Index Series," it said. Both Taiwan and South Korean markets failed to meet six of the 21 measures the FTSE Group requires for developed status.
The FTSE's announcement came after the stock market closed. The TAIEX dropped 8.45 points to 5919.77 points on the Taiwan Stock Exchange (TSE).
The Financial Supervisory Commission, the nation's financial regulators, yesterday welcomed the FTSE decision.
"The [FTSE} move to put Taiwan on a Watch List for developed markets will help promote the international status and visibility of the nation's stock market. It will also help attract foreign funds to continue investing in Taiwan's securities markets," the commission said in a statement.
The FTSE Group said it will closely monitor both Taiwan and South Korea on its Watch List over the next 12 months before it conducts a "country classification review" again in September next year. As a result, no changes to the classification of any countries are expected to be implemented before March 2006, it said.
Status upgrade could mean an inclusion of Taiwanese and South Korean stocks into seven FTSE indexes designated for developed markets, prompting a significant inflow of foreign funds to stock markets in the two nations.
However, analysts said they did not expect the change to Taiwan's rating by the FTSE Group to have much of an effect on the local bourse for the moment.
"It is only a short-lived story that has been reflected [in the local bourse]," said Calvin Chen (
The upgrade or lack of it would not affect the foreign investors' moves in the short term, as they have been actively buying stocks on the TSE since the beginning of this month, Chen said.
Foreign investors have purchased a net total of NT$14.7 billion worth of stocks thus far this month, according to TSE statistics.
A rating increase signals a healthier investment environment, and would no doubt benefit Taiwan in the longer term by drawing an estimated NT$15 billion in foreign capital into the country, Chen said.
However, the possible upgrade seemed to underwhelm another market watcher.
"The FTSE index actually has less significance to the local bourse than MSCI's [Morgan Stanley Capital International]," said Wu Pei-wei (
Wu said that the upgrades would not necessarily be translated into abundant capital inflow, and estimated that between NT$8 billion and NT$10 billion in funds would pour into Taiwan within one year after a future rating increase.
MSCI decided in June to revise the Limited Investability Factor currently applied to its Taiwan Index by two steps.
The first revision would occur on Nov. 30, when MSCI will change the weighting of its Taiwan Index from 55 percent to 75 percent. The final revision will be on May 31 next year, when the weighting of the Taiwan Index will be removed and the benchmark will fully reflect the listed prices of Taiwan's securities.
MSCI's move is expected to attract foreign investments in Taiwan's stocks ranging from a conservative total of US$2 billion to a hefty US$70 billion.
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