Weighting cut by MSCI could drain NT$1.1 billion out of Taiwan

Taipei, A move by MSCI Inc., a global index provider, to cut Taiwan's weighting in two of its major indexes, is expected to prompt foreign institutional investors to remit about NT$1.1 billion out of the country, according to an estimate by the Financial Supervisory Commission (FSC).

Chien Hung-ming (???), chief secretary of the FSC's Securities and Futures Bureau, said earlier this week that a fund drain following the latest weighting cut by MSCI is expected to hit about US$38 million.

However, Chien said the fund outflow is 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 in the local equity market.

The comments came after MSCI announced that it has decided to cut Taiwan's weighting in the MSCI Emerging Markets by 0.01 percentage points to 11.47 percent, and its weighting in the MSCI All-Country Asia ex-Japan Index by 0.01 percentage points to 13.30 percent after a quarterly index review.

However, MSCI has decided to raise Taiwan's weighting in the MSCI All-Country World Index by 0.01 percentage points to 1.38 percent after the index review.

The latest index adjustments are scheduled to take effect after the market closes Feb. 27.

The last trading session of Taiwan's stock market was Feb. 12 ahead of the six-day Lunar New Year holiday, so there was no immediate reaction from the market to the latest MSCI adjustments.

For the last lunar year, the weighted index on the Taiwan Stock Exchange (Taiex) gained 937.14 points, or 10.3 percent, marking the second consecutive lunar year in which the Taiex had ended up more than 10 percent.

On Feb. 12, the Taiex gained closed up 0.48 percent at 10,421.09 points on the back of a higher Wall Street.

Trading of the local equity market will resume Feb. 21.

Yeh Hung-ju (???), an executive director of J.P. Morgan Asset Management, said 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 the 10,000-point mark, with the local economic fundamentals growing at a stable pace on the back of solid global demand.

Yeh said he expects the companies listed on the local stock market to report a 10 percent year-on-year increase in profit for 2018, which could make their shares attractive to foreign investors.

In addition, Yeh said the average dividend yield of Taiwan's equities -- the ratio of a company's dividend payout to its share price -- have been ranging around 4 percent, another factor boosting foreign institutional buying interest in local shares.

He said that currently, foreign institutional investors make up about 40 percent of the total market value of Taiwan's equity market in reflection of the country's continued efforts to boost the stock market's globalization. He added that such efforts in globalization are expected to encourage foreign investors to move more funds into Taiwan.

While the MSCI has adjusted Taiwan's weighting in the three indexes, no Taiwanese stocks, meanwhile, were added to or deleted from the MSCI Global Standard Indexes and the MSCI Global Small Cap Indexes after the quarterly index review.

MSCI conducts index reviews in February, May, August and November every year.

Source: Focus Taiwan News Channel