FTSE Maintains Market Classification for South Korea & Taiwan

The FTSE Group said it is maintaining its Advanced Emerging Market classification on both South Korea and Taiwan, although the countries have been on a watch list for possible status upgrades since 2004.

FTSE said China 'A' shares, or mainland-listed yuan-denominated shares, will remain on its watch list for possible inclusion in the FTSE Global Equity Index Series. Israel will be upgraded to Developed Market status from June 2008, while Hungary and Poland will be upgraded to Advanced Emerging status from Secondary Emerging from June 2008, FTSE said. FTSE will remove Pakistan from the FTSE Global Equity Index Series in June 2008. Greece will be on the watch list for possible demotion to Advanced Emerging Market status. "Markets on the watch list have made very significant changes to their regulations and investment procedures and systems to assist international investors to invest in their markets," said Mark Makepeace, chief executive of FTSE, in a statement. With regards to South Korea, the only criterion for Developed Market status that hasn't been met would be restrictions in the foreign exchange market, FTSE said. "The one critical area is the decoupling of foreign exchange transactions with the custodian systems, giving international investors the freedom to undertake foreign exchange transactions with third parties in a timely manner," Makepeace said at a press conference in Seoul. Makepeace said he expects South Korea to be raised to Developed Market status when the FTSE Group reviews country classifications in September next year, should the final issue be resolved. FTSE said that foreign investors are exposed to foreign exchange-related risks as they can't make settlements on the same day that they buy or sell the won in the Korean market, according to Sung-Yun Hwang, director at Korea Exchange. "We conveyed FTSE's request for improvement to the government and we're positive about a change," he said. For years, South Korea and some of its major investors have argued that it should be considered a developed market, given that it is the world's 13th-largest economy, qualifies as a high-income country under World Bank guidelines, possesses huge government reserves and its companies are global leaders in electronics, steel, autos and ships. Despite expectations for an upgrade, the local market largely remained intact from FTSE's decision to keep its rating on Korea unchanged. At 0430 GMT, the Kospi was just off 0.1% at 1901.74. The dollar traded at KRW923.30, down from Wednesday's close of KRW926.70, while the benchmark five-year bond yields were up three basis points to 5.45%. "The impact is neutral as many major Korean companies are global companies and are already included in many global investment funds anyway," said SK Securities' Kim Joon-Kie. FTSE said Taiwan's exchange and regulator have made significant improvements, but market access remains restricted to international investors in four critical areas - free and well developed foreign exchange market, liquid stock lending market, delivery free of payment allowed for transferring securities between accounts and off-exchange transactions freely allowed. For China 'A' shares, a substantial increase in QFII investment and the removal of foreign investment restrictions are required before they can join the FTSE Global Equity Index Series, said FTSE.