Index compiler FTSE said on Thursday the prospects were better for Pakistan, rated "secondary emerging," but flagged last year as in danger of dropping out of the FTSE Global Index Series altogether.
FTSE Chief Executive Mark Makepeace told Reuters in an interview at the Taiwan Stock Exchange: "What we want to see is that market practitioners have been able to fulfil those changes," he said.
"My expectation at this stage is that they'll remain in the indices as a 'secondary emerging' market," he added. He played down the chances for ratings upgrades of Taiwan's and South Korea's stock markets, saying Taiwan needed time for its market to implement recent rule changes, while Korea's reform drive has lost steam.
Makepeace was also downbeat on Greece, saying the country's stock market faced the very real possibility of a downgrade. Taiwan had made significant progress over the last year in its drive for an upgrade to "developed" market status from "advanced emerging", Makepeace said.
In recent years, the Taiwanese and South Korean stock markets have aggressively lobbied for the upgrade, which would bring in more foreign investment and increase broader investor confidence. Both have been passed over for upgrades in the last three years and will come up again for consideration in September.
"My recommendation to the committee (on Taiwan) will be if the exchange and regulators keep to plans, then the regulations will be in place by September," Makepeace said. "Then it's up to the committee to decide." But he added that sustained market adoption of new rules, which often takes time, would also be a major factor in determining if an upgrade is merited.
"It usually takes 12, 18, 24 months for those changes to be truly effective," he said. "That's probably the time scale the committee will be looking at." Taiwan has been Asia's best performing major stock market so far this year, with the main TAIEX index up three percent on hopes for improved China ties under a new administration. South Korea's KOSPI index is down seven percent.
LOSING STEAM: Makepeace was less upbeat on South Korea, which needed to make fewer changes than Taiwan for the upgrade but whose drive might be stalling. "Korea had less to achieve, but I still believe there are issues it needs to address," he said. "They're making progress. Whereas I was very bullish last year, I think they need to pick up the pace. ... I think they've lost momentum."
FTSE's ratings - and subsequent upgrades or downgrades - can have a major impact on individual markets, allowing more investment by funds benchmarked to the FTSE indices and increasing the chances of larger index compiler MSCI Barra following suit in its annual rating reviews.
Makepeace estimated a ratings upgrade for Taiwan could bring five to 10 percent in additional value to the market. Among other markets in ratings play, Makepeace said Greece - singled out last year for future downgrade potential from its "developed" market status - faces a number of challenges.
"I think there's a very real possibility they'll be downgraded (to "advanced emerging" status)," he said. A big wildcard in the mix remains China's A-share market, closed to all but the biggest foreign investors but nevertheless a huge market. It is not currently rated by FTSE.
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