MSCI delays Malaysia reentry, Taiwan reweighting

Sunday October 31, 1:43 am Eastern Time

MSCI delays Malaysia reentry, Taiwan reweighting

SINGAPORE, Oct 31 (Reuters) - Morgan Stanley Capital International Inc (MSCI) said it had delayed Malaysia's reinclusion into its index to May 31, 2000 from February as announced earlier.

It said in a statement, the changes to Taiwan' weighting would also be deferred until May 31, to avoid adverse market uncertainty over possible leap-year computer glitches. The statement, dated October 30, was issued out of Geneva.

MSCI said the delay was in line with the postponement of its quarterly structural changes to May 31 from February 29. This was prompted by concerns that liquidity in global equity markets might be disrupted by uncertainty over whether certain computer systems would recognise the leap year date.

``After consultation with investors worldwide, MSCI determined that it is prudent to postpone its regular quarterly structural changes for that date (February 29), even though no major problems are foreseen,'' MSCI said.

``This postponement also affects the previously announced changes to the weights of Malaysia and Taiwan.''

A leap year, when an extra day is added to February, occurs every four years. While most computer systems provide for leap years, concerns over the Y2K or millennium bug have also rubbed on to the leap year change.

MSCI said in August it would reinstate Malaysia because a curb on capital flows ended in September, and increase Taiwan's weighting in its index series, from next February, an announcement that gripped markets across the region.

In the statement MSCI said the process of financial liberalisation in Malaysia remained intact.

``Although certain issues remain open, and the investment procedures for foreign investors remain difficult in Malaysia, there has been no reversal of the process of liberalisation of the Malaysian financial markets,'' it said.

``As a result, MSCI confirms its previous announcement that the MSCI Malaysia Free Index will be reincluded in the MSCI Emerging Markets Free (EMF) index series and the MSCI All Country (AC) Free index series, including the MSCI AC Far East ex-Japan Index.''

The delay in reincluding Malaysia into the indices is expected to disappoint the country's stock market which had risen for most of last week partly on speculation that MSCI would readmit it sooner than February.

But John Fildes, MSCI's executive director in Hong Kong told Reuters:

``There is no basis for such rumours. There has been no precedence of moving it forward.'' He added that if it was pushed sooner it would coincide with the Y2K transition period.

Fildes also said MSCI decided not to push Malaysia's reinclusion for March 2000 as it would be a busy period for fund managers.

Malaysia was pulled from the indices last year after the country imposed controls on capital flows. On September 1, Malaysia ended a tax on repatriated principal of foreign portfolio investments, replacing it with a 10 percent capital gains tax.

Fildes also confirmed MSCI's plan to raise the weighting of the MSCI Taiwan Index from 50 percent to 100 percent in both the MSCI Emerging Markets Free Index and and MSCI All Country Free index series.

Fildes said in August the the planned reinclusion of Malaysia and the increase in weighting for Taiwan would decrease the weighting of Hong Kong to just over 26 percent from just under 33 percent, while Singapore's weight would move to around 10.5 percent from just over 13 percent.

MSCI said the decision over how to phase in the changes relating to Malaysia and Taiwan would be announced before the end of December.

It has sought feedback on whether to use two or more stages of implementing such substantial increases in the market capitalisation of its indices, in order to minimise market disruption.