Taiwan stocks are likely to rise this week following Morgan Stanley Capital International's announcement it would raise the Taipei market's weighting in its emerging markets index.
But analysts said any gains would be limited because sentiment remained jittery after the TAIEX share index fell 2.9 percent last week to close at 5,569.29 and threatened to test support from a nine-month low of 5,450 reached on May 17.
Morgan Stanley Capital International (MSCI) said Taiwan stocks would be weighted in the widely-followed Emerging Markets Index at their full market capitalisation by May 31 next year.
"This is positive news for the long term. Some US $20 billion could enter the market by the time that Taiwan stocks are fully included," said Chiang Chen-sheng, research manager at Masterlink Securities Investment.
"With the pessimistic mood in the market, there were people who thought the hike would be delayed or not even happen."
MSCI said Taiwan stocks would first be weighted at 75 percent capitalisation beginning November 30, up from the current 55 percent, in a widely-expected move to reflect the island's deregulation of foreign investment rules.
The move to full inclusion before June next year, making Taiwan the most heavily weighted market in the Emerging Markets Index, was more than investors had anticipated.
Sector heavyweights like top contract chipmaker Taiwan Semiconductor Manufacturing Co and Cathay Financial Holdings, the biggest local financial firm, are likely to reap the greatest benefit.
Although the hike is expected to keep the TAIEX from falling, analysts said investors remain in a cautious mood, with turnover hitting its lowest in nearly three months on Friday at just T$56.43 billion.
Sentiment in the big-capitalisation tech sector is also fragile after AU Optronics offered shares on the US market at a lower-than expected prices last week.