Asia gets mixed results in MSCI changes

The changes to the Morgan Stanley Capital International indices to account for free floats – the amount of a company’s shares freely available to any foreign portfolio investor – were announced on Saturday. Asia ex-Japan’s total market capitalization weighting in the MSCI World index has been cut by a third, from 3.38% to 2.89%. But individual countries in the region will be gainers – and others even greater losers, say Merrill Lynch co-heads of Asian derivatives research Ken Chang and Todd Kennedy.

But they add that in the long run, these flows are insignificant except at the company level. The entire MSCI process is so drawn out – the parameters of the changes were announced a year ago, and investors have now 12 months to implement them – that fund flows will not be impacted. Chang notes that all the trades in the region to accommodate investors to the MSCI changes probably add up only to several days’ trading volume.