MSCI’s weighting cut forecast to drain NT$24 billion from Taiwan

Taipei, A move by global index provider MSCI Inc. to cut Taiwan's weighting in its major indexes is expected to lead to a foreign fund outflow of more than NT$24 billion (US$803 million), according to the Financial Supervisory Commission (FSC).

The FSC, the top financial regulator in Taiwan, estimated on Tuesday evening that foreign institutional investors, who track MSCI's indexes closely, will move about NT$24.2 billion out of Taiwan's markets after the weighting cut.

MSCI announced early Tuesday morning Taipei time that it will lower Taiwan's weighting in the Emerging Markets Index by 0.21 percentage points to 11.13 percent and the country's weighting in the All-Country Asia ex-Japan Index by 0.25 percentage points to 12.84 percent.

It also decided to raise Taiwan's weighting in the All-Country World Index by 0.02 percentage points to 1.37 percent. The weighting cuts came after MSCI's semi-annual index review in May.

The adjustments are scheduled to take effect after the market closes on May 31, MSCI said.

Chou Hui-mei (???), deputy head of the FSC's Securities and Futures Bureau, said the fund outflow estimate was based on the 0.21 percentage point cut in the Emerging Markets Index, which passive mutual funds follow closely when planning moves in emerging markets.

But Chou downplayed the significance of the expected fund outflow, saying it will only account for 0.17 percent of the market capitalization owned by foreign institutional investors in Taiwan.

Also, Taiwan was not the only market affected by a cut after MSCI added 234 Chinese yuan-denominated A shares to its indexes, she said, pointing to South Korea and India, whose weightings in the MSCI Emerging Markets Index were cut by 0.35 and 0.14 percentage points, respectively.

According to Chou, the 234 A shares included in the MSCI indexes represent 2.5 percent of the market value of all A shares listed in China, and MSCI is expected to include more A shares in its next adjustment in August to boost the ratio to 5 percent.

Lin Liang-yi (???), manager of the Yuanta P-shares MSCI Taiwan ETF Fund, said the inclusion of Chinese A shares in MSCI indexes could lead foreign investors to put more of their funds into the Chinese market in the short term, but he believed the impact on Taiwan's market will be limited in the longer term.

The Taiwan Stock Exchange (TWSE), which operates the main stock market in Taiwan, echoed Lin's view, saying many listed companies in Taiwan should still be able to attract foreign funds because they have sound fundamentals and relatively high dividend yields.

According to the TWSE, listed companies in Taiwan generated NT$9.73 trillion (US$325 million) in combined sales in the first four months of this year, up 8.27 percent from a year earlier, while the average dividend yield stood at 4.42 percent at the end of April.

Source: Focus Taiwan News Channel