MSCI latest adjustments will significantly increase the weighting of Taiwan stocks and TSMC, bringing $2.3 billion in capital inflows

MSCI (Morgan Stanley Capital International, MSCI), the index provider, has released its latest quarterly adjustment results, which are expected to trigger a reshuffling of global passive capital. Based on Goldman Sachs’ analysis, during this quarter’s review, Taiwan’s weights in all three major international indexes were increased, indicating a growing influence in global markets. Goldman Sachs estimates the changes will bring $2.3 billion in capital to Taiwan, about NT$72.5 billion in inflows. For Taiwan index constituent stocks, TSMC saw a notable weight increase; this latest MSCI weight adjustment is expected to take effect after the close on May 29.

Taiwan stocks see weights raised across all three MSCI indexes

In this MSCI quarterly review, Taiwan stocks in all three key benchmarks show an upward trend in weight. Specifically, Taiwan’s weight in the “MSCI Global Market Index” was slightly raised from 2.79% to 2.80%; in the “MSCI Global Emerging Markets Index,” the weight increased from 23.46% to 23.76%, an increase of 0.3%; and in “MSCI Asia ex Japan,” the weight rose from 26.79% to 27.16%, up 0.37%. These changes reflect Taiwan’s growing share in global and emerging-market benchmarks, which is expected to drive exchange-traded funds (Exchange Traded Funds, ETFs) tracking these indexes to increase their allocation to Taiwan stocks accordingly. Goldman Sachs estimates the changes will bring $2.3 billion in capital to Taiwan, about NT$72.5 billion in inflows.

Constituent list changes: TSMC weight increases; Wonsem enters

For the internal structure of the “MSCI Taiwan Index,” the total number of constituents decreased from 83 to 77, and 17 constituent stocks saw adjustments to their shares outstanding. In terms of individual stock changes, one new stock was added this time: Wonsem (6223). At the same time, seven stocks were removed: Compal (2324), Formosa Epitaxial? (2474), Far Eastern New Century (1402), Asia Cement (1102), Nidec? (1504), China Airlines (2610), and Taiwan High Speed Rail (2633). In weight allocation, TSMC (2330) was the company with the largest increase in this round, with its weight rising by 0.56% to 58.33%; while Compal, which was removed, saw the largest decrease, dropping 0.15% to zero.

Asia-Pacific capital shuffles: technology hardware and semiconductors in focus

Goldman Sachs’ report notes that this MSCI global index restructuring is expected to produce a significant capital crowding-out effect across different industry sectors. Technology hardware and semiconductor benchmark indexes in the Asia-Pacific region are expected to attract as much as $9.1 billion in inflows, which is also the main reason Taiwan (estimated inflows of $2.3 billion) and South Korea (estimated inflows of $1.9 billion) are expected to benefit. By contrast, traditional industries such as capital goods, consumer retail, and consumer staples are expected to face outflows of $2.6 billion, $2.5 billion, and $2.4 billion, respectively, indicating that international institutional capital is shifting from traditional sectors to technology supply chains with technical and innovation-driven characteristics.

Regional performance diverges: Taiwan and South Korea rise; Japan and Indonesia face outflows

Compared with net inflows into Taiwan and South Korea, some Asian markets are facing reduced capital in this adjustment. Goldman Sachs estimates Japan will see outflows of about $2.1 billion, while Indonesia and India are expected to see outflows of $1.6 billion and $0.87 billion, respectively. Taking Indonesia as an example: after MSCI removed six companies from its index (including four companies among the top 20 by market cap), the Jakarta Composite Index fell nearly 2% on the day of the announcement. The removed stocks saw declines ranging from 7% to 15%. Historical data show that stocks added or upgraded through Foreign Inclusion Factors (Foreign Inclusion Factors, FIF) typically outperform the removed targets in the short to medium term.

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