MSCI indices for Asia and Thailand

Most analysts agree that political uncertainties, sluggish financial restructuring and better opportunities in other markets are the key factors behind the 37.58% decline in the Stock Exchange of Thailand index over the first half of this year. Leading the sell-off have been foreign investors, whose sales have outweighed purchases by 28 billion baht in the period. One factor has been the steady decline in Thailand's country weighting in investment benchmarks.

The most widely used of these are indices from Morgan Stanley Capital International. Global portfolio managers refer to them when allocating assets across different countries. The benchmarks are calculated on several factors, including market capitalisation, liquidity and the shares readily available to investors, otherwise known as the free float.

Shares used in the calculations represent various industries in each country. In Thailand, stocks used include Land and Houses, Bangkok Bank, United Communications Industry and National Finance. Weightings for Thailand have declined steadily in recent years.

Country weightings
Weightings in the MSCI Far East Free ex. Japan Index:
Country weight (%)
Country	Sept'96	July'99	Oct'99	Nov'99	Mar'00	May'00	Jun'00
China	0.6	1.1	1.0	0.9	0.6	0.8	9.4
Hong Kong	27.1	33.4	33.9	33.0	36.4	34.3	23.9
Indonesia	6.2	3.2	3.2	3.1	2.5	2.0	1.3
Korea	7.2	24.1	22.3	21.8	20.5	22.6	19.9
Malaysia	20.1	-	-	-	-	-	10.1
Philippines	4.7	2.6	2.3	2.3	1.7	1.7	1.2
Singapore	14.3	13.4	13.6	15.6	13.0	13.8	11.2
Taiwan	11.2	17.0	18.8	18.5	20.9	21.1	20.3
Thailand	8.6	5.3	4.9	4.8	4.4	3.7	2.7
Source:	Securities and Exchange Commission

In the MSCI Far East Free Index, excluding Japan, Thailand's weighting has declined from 8.6% in September 1996 to 2.7% as of last June.

Suvabha Charoenying, chief executive of Nakornthon Schroder Asset Management, said local fund managers primarily rely on the SET Index as their main guide to setting investment strategies. But with foreign funds relying heavily on the MSCI indices, any changes, up or down, do have significant impacts on foreign investment flows and overall market trends.

Many investors are watching carefully to see whether any new changes will be made in rankings by MSCI next month.

"It's difficult to say whether MSCI will raise weightings for the Thai market," Mrs. Suvabha said. "It depends on MSCI's view of the Thai market. But for most local fund managers, the low valuations represent a good opportunity for gains."

A recent study by the Securities and Exchange Commission identified several factors behind Thailand's drop in weightings in the MSCI indices. For instance, Malaysia was reintroduced into MSCI's Emerging Markets and All-Country indices in June, leading to a drop in ratings for Thailand and other regional markets. The shift in investor popularity for electronics and telecommunications stocks has helped boost Taiwan's weighting in the Far East Free ex-Japan Index from 11.2% in 1996 to 20.3% as of June this year.

MSCI also broadened the scope of firms allowed into the MSCI China Free Universe Index to include companies established in Hong Kong. MSCI also adjusted the free-market capitalisation factor for several stocks in May, to compensate for changes in the float available to foreign investors. Overall, changes in recent years have led to a decrease in weightings for Thailand and gains for China, Taiwan and Hong Kong.

"If fundamentals for listed companies in the SET strengthen, and new companies enter the exchange raising overall market capitalisation, there are good opportunities for an increase in MSCI weightings in the future," the SEC report said.

MSCI divides its benchmarks into three groups. The first, covering developed markets, includes 30 indices divided into regional and composite indices. The Emerging Markets category covers 11 indices, while the third group, All-Country, covers 26 indices.

The Thailand Free Index is calculated based on closing market prices, free float and market capitalisation factors to compensate for foreign shareholding limits on securities. Overall, 42 securities are used by MSCI to calculate Thai benchmarks, with a total market capitalisation of around $23 billion.