ROC still among emerging markets in the MSCI index
By John Liu, The China Post
June 12, 2014, 12:00 am TWN
TAIPEI, Taiwan -- Taiwan remains an emerging market on the MSCI index, and is removed from the review list of country indexes for potential upgrade into developed markets, based on a report released by MSCI on Tuesday.
South Korea received the same treatment as Taiwan, according to MSCI's report. “This decision is motivated by the absence of any significant improvements in key areas negatively affecting accessibility in the Korean and Taiwanese equity markets for the past few years,” MSCI said in a statement.
MSCI said, however, that both countries may be added back into future reviews for possible upgrade, as soon as meaningful improvements are made.
Taiwan's levels of economic development, market scale and liquidity have reached those of developed nations. Nevertheless, Taiwan is not considered in the developed marketing ranking based on three reasons, the MSCI said. First, the New Taiwan dollar is not a currency traded in the global market. Second, cash payment is a prerequisite for trading in Taiwan's stock market. Third, Taiwan's ID verification system prevents securities transfers and overseas transactions.
Like Taiwan, South Korea's levels of economic development, market scale and liquidity have also reached those of developed countries. However, the nation faces two problems, which are restrictions on Korean won and a stringent ID verification system that prevents free flow of investment capitals.
China Not Included in Emerging Market Index
Meanwhile, China's A-shares failed to receive emerging market ranking on the MSCI index. The MSCI said “this decision is based on feedback highlighting remaining investability constraints linked to the QFII (qualified foreign institutional investors) and RQFII (reminbi-denominated QFII) quota systems received from international institutional investors.”
Nevertheless, MSCI said it would still consider including China's A shares in its 2015 review. MSCI also listed three discrepancies investors have regarding China's A-shares, which are capital allocation, restriction on capital liquidity, and uncertainty in capital gains tax.
TWSE Will Continue to Liberalize the Stock Market
There were relatively low fluctuations in the three countries' stock markets after MSCI made the announcement. With the government's intervention, Taiwan shares closed up 7.43 points, or 0.08 percent, at 9,229.80 yesterday on turnover of NT$100.33 billion.
In response to MSCI's announcement, Taiwan Stock Exchange (TWSE) said yesterday that its policy to liberalize and internationalize the capital market of Taiwan will remain unchanged. TWSE said it would strive to bridge differences between the TWSE and MSCI, in an effort to move up to the developed market ranking as soon as possible.
Developed economies make up 89 percent of the MSCI index, while emerging economies make up the remaining 11 percent. Analysts have predicted a surge in capital inflows from foreign investors, should Taiwan be upgraded to the developed market ranking.