South Korea and Taiwan will be assessed for possible promotion to developed market status next month, but any change is unlikely to be implemented for at least 12 months, an official at index compiler FTSE said on Monday.
There has been investor speculation of a FTSE upgrade from the current advanced emerging market status, but any change had been expected to take effect from March, 2006.
Emerging markets are sensitive to news surrounding potential upgrades since it could lead to an inflow of money, as global indexes such as FTSE and the Morgan Stanley Capital Index are widely tracked by index funds run by money managers.
The FTSE Equity Committee, which is responsible for classification will meet on September 8, and will announce its decision the following week, Paul Hoff, managing director of FTSE Asia Pacific, told Reuters in a telephone interview.
"These kinds of decisions will affect a large amount of investment money," Hoff said. "The Committee will give 12-18 months notice before any changes so that investors would have a lot of time to change their strategies."
Should FTSE leave things unchanged, the markets would have to wait one more year before a new review, the official added.
Many market players in South Korea are predicting an upgrade as regulators of the Korea Exchange, which oversees the domestic bourses, has taken steps to facilitate an upgrade, such as relaxing regulations barring overseas investors from investing in the local equity market.
The index compiler failed to add South Korea or Taiwan to its global indexes last September, saying they fell short in several areas including foreign ownership restrictions, a simple registration process for foreign investors and a free and well-developed foreign exchange market.
Instead, both were categorised as advanced emerging markets and put on a watch list for a possible upgrade.
"The committee does not just look at the framework. They talk to lots of investors to gather information. Investors' opinion about South Korea's market is very important," Hoff said.
The FTSE Equity Committee would also gather information from international credit rating agencies such as Standard and Poor's, the official said.
Standard & Poor's raised South Korea's long-term foreign currency rating by one notch to A from A-minus last month citing an improving financial sector and increased monetary flexibility.
FTSE estimates that $2.5 trillion worth of funds are benchmarked against its indexes.
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