MSCI Surgery On Stock Indexes To Benefit Australia
Sunday December 10 10:20pm
Source: Dow Jones
By Helen Ubels
Of DOW JONES NEWSWIRES
SYDNEY -(Dow Jones)- Analysts expect Australia to benefit from Morgan Stanley Capital's planned changes to its global stock indexes, but apart from a rise in Telstra Corp. (TLS) there was little reaction on the local stock market Monday.
MSCI on Sunday confirmed it will adjust the weighting of stocks in its widely followed indexes to reflect their free-float levels, or the proportion of equity not in the hands of governments, corporations, controlling shareholders and management or subject to foreign-ownership restrictions.
As Australia has a relatively heavy number of stocks with wide-open registers, especially when compared with its Asian neighbors, its weighting in various MSCI indexes is expected to creep higher, leading to hundreds of millions, if not billions, more dollars flowing into the country.
Australia, the U.K., the U.S., Switzerland and Finland "look to be the winners" from the shift to adjust for free floats, while Hong Kong, Singapore, Japan, France and Italy will be the losers, said Robert Vanderzeil, director of equity operations with UBS Warburg Australia.
Vanderzeil said guessed that an extra A$4 billion could flow into Australia given the huge amount of funds under management that are either indexed or benchmarked against MSCI indexes.
MSCI estimates that US$600 billion of funds under management globally are indexed against its benchmarks.
A second change announced Sunday will see the coverage of the MSCI Standard Index series reflecting 85% of the total market capitalization of each market and of each industry group in each market, up from 60% currently.
This means there will be more Australian companies in the MSCI indexes and therefore on the radar screens of international fund managers.
But the changes aren't immediate. They will be introduced in two phases - at the end of November 2001 and the end of May 2002.
"In the longer term, it could prove...to be quite a bullish thing for Australia, but I don't think anybody can look to preempt something that is a year out," said Vanderzeil.
The implementation of the changes is further away than had been expected, and MSCI doesn't plan to announce the names and weightings of stocks in its recast indexes until 2001, possibly as late as June 30, he noted.
On the Australian Stock Exchange, the S&P/ASX 200 Index gained 24.8 points or 0.8% to close at 3312.4 Monday, but appeared to be mostly influenced by gains on Wall Street Friday, said brokers. Telstra, which had been one of the perceived losers from the MSCI changes, jumped 19 cents or 3% to A$6.47. Investors pushed Telstra down 13 cents Friday in anticipation of the MSCI changes, but support returned Monday when the market realized the changes are so far away, said Michael Wills, head of institutional sales at ABN Amro Equities Australia.
Eighteen months "in investment parlance is a couple of centuries," he said.
Todd Kennedy, a derivatives strategist with Merrill Lynch & Co., said the changes confirm that Rupert Murdoch's News Corp. (NWS) and Telstra are set to have their weightings reduced. In the case of Telstra, which already is only 60% weighted, it could have its weighting cut further to reflect a restriction that prevents more than 17.5% of the entire company being held outside Australia, said Kennedy.
(This story was originally published by Dow Jones Newswires)
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