MSCI cuts weights of Taiwan in key indices
At its semi-annual review last week, index provider MSCI lowered Taiwan’s (EWT) weights in two major indices. MSCI decreased Taiwan’s weighting in the MSCI Emerging Markets Index (EEM) to 12.04% from 12.09% earlier and in the MSCI All-Country Asia ex-Japan Index (AAXJ) from 14.14% to 14.11%. However, it’s weighting in the MSCI all country Index remains unchanged. While the cut may not be big in terms of percentage, it may impact fund flows to the country. Since MSCI indexes are closely tracked by foreign investors and replicated by fund managers when they lay out their investment strategies, such weighting changes could lead investors to divest a percentage of holdings in Taiwan.
Market sentiment took a hit after MSCI cut Taiwan’s weighting in the MSCI Emerging Markets Index, which is closely watched by foreign investors. Taiwan’s benchmark Index- Taiex Index edged lower but remained above the crucial 10,000 mark.
Mega International Investment Services analyst Alex Huang explained, “Investors were also reacting to MSCI’s move to cut Taiwan’s weighting in its indexes. But I expect the impact to be short-lived because the reduction was minor.” Experts also believe the impact of the MSCI weighting cut was largely anticipated and priced in by markets already.
MSCI Global Standard Indices
Meanwhile, MSCI increased weightings of 13 Taiwanese stocks and cut ratings of 15 Taiwanese stocks in its MSCI Global Standard Indices. They added Taiwan High-Speed Rail Corp and silicon wafer supplier Global Wafers to the MSCI Global Standard Index. They also increased weightings of Formosa Plastics, China Steel, Standard Foods and Hotai Motor Corp.
Among the stocks whose ratings were decreased, the weighting of Formosa Chemicals & Fibre was cut the most by 0.18%. MSCI also lowered weights of First Financial Holding, Casetek Holdings, Hua Nan Financial Holding, Chang Hwa Commercial Bank, IC packaging Precision Industries, and Eclat Textile among others.