We have learned from the MSCI website that in the 2011 Annual Market Classification Review Taiwan and Korea once again remain under review for a potential reclassification to developed markets. In both markets, issues including the lack of currency convertibility and the absence of active offshore currency markets remain unchanged.
Central Bank of the Republic of China （Taiwan）
Press Release
Release Date: June 23, 2011
We have learned from the MSCI website that in the 2011 Annual Market Classification Review Taiwan and Korea once again remain under review for a potential reclassification to developed markets. In both markets, issues including the lack of currency convertibility and the absence of active offshore currency markets remain unchanged.
This report runs contrary to the reality of the situation. We regret to read the comment that “the New Taiwan Dollar (TWD) is not freely convertible and in particular, there is no offshore currency market.” The CBC would like to take this opportunity to clarify these issues.
There is no foreign exchange restrictions connected with FINI investment in Taiwan’s equity market. Inward and outward remittances related to foreign portfolio investment are completely liberalized without any restrictions. New Taiwan dollar is fully convertible for FINIs.
The NT dollar is not an international reserve currency. There is no demand for a 24/7 trading. In practice, bid - offer spread for USD/NTD may widen in offshore market trading, which could not help foreign investors in hedging exchange rate risk. We don’t think it is meaningful to raise such an issue in connection with the liberalization level of the foreign exchange market.
The CBC has made every effort to clarify the above-mentioned issues to MSCI by sending letters and meeting with MSCI people during their visits to Taiwan. However, we have not yet received any friendly response. We find it hard to accept that these issues are still offered as excuses why the Taiwan market cannot be upgraded.
Some investors expect the upgrade of Taiwan’s equity market to attract more foreign portfolio investments to the domestic equity markets. The fact is, in accordance with its market cap, Taiwan’s equity market has enjoyed a significant share in the related emerging market indices. The share will certainly shrink if Taiwan’s equity market is upgraded and included in the advanced market indices in the future. In addition, net investment outflow is likely to occur because investment funds tracking emerging market indices will fall in line with the Taiwan’s weight in the new indices and be replaced by funds tracking advanced market indices.