FTSE launches new index to rival MSCI

FTSE launches new index to rival MSCI
Nick Edwards

Hong Kong, June 30: British stock index company FTSE International Ltd launched a new series of global stock indices on Friday, adding 19 emerging market countries in a move to unseat the MSCI as the world's premier investment benchmark.

"A lot of people feel they don't have a choice at the moment," Graham Colbourne, a director of FTSE told Reuters. "A lot of very committed MSCI users have told us they would like a choice," said Colbourne, in Hong Kong to launch the FTSE All-World Index.

The new global benchmark, which goes live at the close of business in New York later on Friday, was created by the integration of ING Baring's Baring Emerging Markets Index with the existing FTSE World Index.

China, Malaysia, South Korea, Taiwan, India and Pakistan are the Asian economies included in the total of 19 new additions to the FTSE All-World which covers 39 industry sectors and 102 sub-sectors in three tiers -- developed, advanced emerging and emerging economies.

Just missing out on inclusion were Sri Lanka, Jordan and Zimbabwe, Colbourne said, adding that FTSE would open an office in Hong Kong soon to support the index and its clients in Asia. The new index covers 78 per cent of total global market capitalisation and on average, 58 per cent of individual country capitalisation, a deeper reach than the rival Morgan Stanley Capital International (MSCI) indices, Colbourne said.

About 2,500 individual firms are included in the index which is free float adjusted, accounting for shares that would be readily available in the market, to judge the investibility of stocks. Weightings are reduced to consider cross shareholdings, significant director or family holdings and foreign ownership restrictions.

Emerging and advanced emerging economies make up around three per cent of the total market cap of the new index, reflecting both market cap and investibility. Only about 10 of some 300 emerging market companies have a 100 per cent weighting, Colbourne said.

All Taiwanese companies included, for example, had a maximum possible weighting of 50 per cent, because there is a 50 per cent foreign ownership restriction on owning Taiwanese businesses. Weightings have been the subject of huge debate as an index weighting in a global benchmark has a major influence on capital flows from institutional funds. MSCI recently adjusted its weightings.

Colbourne said emerging market weightings in the FTSE All-World Index reflected the realities of investing and would rise as privatisations boosted market capitalisation and economies grew. He said China was only a small part of the new index.

"Our China index is absolutely tiny because once you screen for investibility, particularly liquidity, you end up having a very, very small index," he said.

If China did move to make its stock exchanges more representative of the whole economy and did make them more transparent, then it could signal a change in weightings. The index, controlled by an independent practitioner committee, would be reviewed quarterly, with new listings added sooner if the size of an issue or its price warranted.

But getting fund managers to switch from one benchmark to another would be tough, Colbourne admitted. "Funds won't change benchmarks easily. But if they change managers, which they do often, then we'll try and persuade them as they are looking at their manager and their mandates and their asset allocation to look at their benchmark index as well," he said.