MILESTONES / GLOBAL
by Gordon Platt
Taipei: Developed but still emerging, according to MSCI
Many thought this would be a breakout year for the Pacific Rim—the year two of its hottest economies would be designated ‘developed markets.’ But MSCI deemed otherwise. The global index provider declined to promote Taiwan and South Korea from the ranks of ‘emerging markets,’ despite the steps they had recently taken to court international investors. Both countries, it said, would remain under review for another year.
The latest review again cited the lack of full currency convertibility, including the absence of active offshore currency markets, and the rigidity of investor identification systems as reasons for not upgrading the countries. In the case of South Korea, MSCI said the country has put some measures in place to eliminate frictions and inefficiencies resulting from these accessibility issues. “However,” it concluded, “feedback from investors indicated that their actual experience has seen limited improvement, as administrative constraints attached to these measures make them of limited effectiveness in practice.” It added that anti-competitive practices related to stock market data have not yet been eliminated. MSCI praised Taiwan, meanwhile, for bringing its settlement system more in line with international practices.
While Taiwan and South Korea will have to wait until next year for promotion, Qatar and the UAE could be upgraded from frontier markets to emerging markets later this year. MSCI extended the review period for both to December to give market participants more time to evaluate what it said were recent positive changes in these markets. Given that new delivery-versus-payment (DVP) models were just introduced in May, few market participants have had the time to fully assess the recent enhancements, MSCI says.
Qatar Exchange portrayed the decision in a positive light, saying the extension of the deadline showed recognition of the steps taken by the exchange and regulators in Qatar to improve the market infrastructure and develop the market. MSCI says international investors continue to be concerned, however, about the limited availability of shares to foreign investors, particularly in Qatar, which has a 25% cap on foreign ownership of listed companies.