S. Korea, Taiwan miss FTSE upgrade again

By contrast, Israel will be promoted to developed status from June 2008, with the country meeting all markets criteria after it was placed on watch for a possible upgrade just last year, FTSE said Thursday.

An upgrade for South Korea and Taiwan would have attracted more buying from funds benchmarked to the FTSE indexes and would have increased the chances of larger index compiler MSCI Barra following suit at its review announcement in May, analysts said.

South Korea and Taiwan will remain at advanced emerging market status for a third consecutive year ever since they were placed on the watch list to be upgraded in 2004.

“The FTSE decision was very disappointing,” said Choo Hee-yeop, deputy general manager of asset management strategy at Korea Investment and Securities.

“However, the outlook for the market is not so bad, helped by hopes for better corporate earnings,” he added.

FTSE’s chief executive Mark Makepeace said South Korea was likely to be upgraded within two years.

“Yes, there are criteria to be fulfilled, but we are giving notice to markets that Korea should be promoted to developed status by 2009,” Makepeace told reporters in Seoul.

“All international investors are on notice that this change is very likely to happen,” he added.

Makepeace’s visit to South Korea on the day of the announcement had sparked speculation that he had positive news in store.

FTSE said South Korea still needed to work on removing restrictions on the free delivery of securities between accounts and in the foreign exchange market as well as easing off-exchange transactions.

For Taiwan, the index compiler said a free and well developed forex market, a liquid stock lending market as well as improving the process of transferring securities between accounts and off-exchange transactions were still needed.

The news kept a lid on South Korean stocks with the main KOSPI down 0.2 percent by 0400 GMT, but Taiwan’s main TAIEX index rose almost 1 percent in line with Wall Street, shrugging off the disappointment.

Goodmorning Shinhan Securities recently estimated net foreign inflows into South Korea could have reached some 10-15 trillion won if it had been upgraded.

About US$2-2.5 trillion in assets are estimated to be linked to FTSE indexes, most of it in developed market indexes, compared to US$3 trillion for MSCI.

“If Taiwan was upgraded, it could drive the markets up about 3-5 percent in the short run, and MSCI would also adjust its rating as well,” said Taipei-based Jerry Chang, a fund manager at National Investment Trust, which manages US$45.5 million.

The index compiler also said Pakistan will be removed from its Global Equity Index Series from June 2008, after it failed to meet entry requirements.

Hungary and Poland will be lifted to advanced emerging status from the middle of next year and Greece will remain on watch to be demoted to advanced emerging status from developed status, due to restrictions to international investors.

FTSE classifies countries into three categories: developed, advanced emerging and secondary emerging within its Global Equity Index Series.

China’s mainland A shares will remain on the watch list for possible inclusion in its Global Equity Index Series, the index complier said after its annual review.

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