The MSCI Index is designed to track the performance of the Taiwanese equity market. MSCI stands for Morgan Stanley Capital International, but the popular Morgan Stanley bank is not involved in the development and management of indices.
Morgan Stanley bought the marketing rights of the indices provider, Capital International, in 1986, leading to the birth of the MSCI. In 2004, MSCI merged with Barra to form MSCI Barra; but a 2007 Morgan Stanley divestiture spanned off their rights, forming MSCI Inc.
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The company has over 200,000 equity indices classified in broad categories, such as the MSCI Developed Market Indices, MSCI Emerging Markets Indices, MSCI All Country Indices and MSCI Economic Exposure Indices.
The MSCI Taiwan index has 87 (both large and mid-cap companies) constituents, which represents more than 85% of the entire Taiwanese float-adjusted market capitalisation. Taiwan is an important global emerging economy that has important linkages with China, Japan, the United States and the European Union.
The MSCI Taiwan index was launched on 31st of July, 1989 with an initial base value of 100. The index mirrored Taiwan’s economic fortunes as it drifted higher to post a high of 380 in January 2007. The Asian country was hit hard by the 2008 global financial crisis, with the MSCI tumbling to a low circa 159 by January 2009. The subsequent strong recovery inspired a multi-year MSCI uptrend that has since printed an all-time high of 446 in November 2019.
Why Trade MSCI via CFDs?
Realistically, one of the ways to trade a stock index, such as MSCI, is to have a futures trading account with the relevant exchange. Today, however, CFD brokers, such as AvaTrade, allow investors to speculate on the prices of underlying assets, in this case, the MSCI index.
Here is why you should trade MSCI as a CFD:
- Leverage – With AvaTrade, CFDs can be traded with leverage, which allows you to amplify your potential profits even when trading with minimal capital.
- No commissions – Unlike in the futures market, many CFD brokers, such as AvaTrade, charge no commissions when you trade your favourite indices.
- Low trading costs – CFD brokers charge a spread (the difference between the bid and ask price) which can be as low as 0.01% of the trade position.
- Trade both ways – Your trades could end profitably regardless of the trend direction of the CFD.
Index Composition and Calculation
MSCI is both a capitalisation-weighted and free-float index. This means that market capitalisation determines inclusion into the index, while free float means that the calculation involves only outstanding shares available to the public. Both large and mid-cap companies are included in the MSCI, but there is a sectoral cap that aims to limit the concentration risk.
Here is what is required to be included in the index:
- A company must be listed on the Taiwan Stock Exchange
- Shares of the company must be liquid. A liquidity screen is applied to ensure only companies that have a 12-month annualised traded value ratio (ATVR) of more than 10% are included.
The MSCI Taiwan calculation methodology aims to comprehensively reflect the investment opportunity available in the Taiwanese equity market. The index is rebalanced quarterly in February, May, August and November. In particular, during the May and November semi-annual reviews, new cut off guidelines for both large and mid-cap companies are updated.
Here are the top 5 sectors represented in the MSCI index:
|Information Technology||61.85%||Taiwan is a leading global exporter of semiconductors and wireless communication equipment|
|Financials||17.22%||Taiwan is one of the most ‘overbanked’ nations of the world and boasts a robust and secure banking and financial system|
|Materials||8.34%||Taiwan is the world’s largest materials market and manufacturer|
|Communication Services||3.58%||Taiwan has a dynamic communication services sector as well as a telecoms infrastructure|
|Consumer Discretionary||3.42%||Taiwan is home to some of the highest consumer discretionary income owners|
Factors Influencing the Overall Price of the MSCI Index
With 87 constituents included in the MSCI Taiwan Index, there is a multitude of factors that may impact the overall pricing of the index. Information Technology and Financials dominate the index, contributing 6 of the top 10 constituents, and any significant change in any major company or the entire sectors will have a significant impact on the MSCI value.
Major events, such as financial crises, trade talks or even negative military actions that impact stock markets, can also influence the price of the index. Taiwan is an important part of the global supply chain and it reacts swiftly to any developments that impact the demand or supply of investment risk.
Taiwan has a highly regulated monetary environment, with the government always keen to keep the value of its local currency in check to protect its fledgling export industry. Typically, stocks will rise (and consequently indices) when the local currency weakens, and vice versa.
Why Trade the MSCI Index?
- Liquidity – The MSCI represents over 85% of float-adjusted market capitalisation in the Taiwan Stock Exchange. This guarantees sufficient liquidity.
- Price Stability – The computational method, as well as the composition of the MSCI index, ensure that price movement is smooth, stable and predictable.
- Diversification – MSCI covers almost all major sectors in the Taiwan economy, which gives exposure to massive opportunities of a major emerging Asian nation.
- Vast News Coverage – As the foremost index for an important emerging Asian nation, there is immense news coverage and available resources for easier trading and analysis.
Benefits of Trading MSCI index with AvaTrade
AvaTrade offers its traders access to a safe and secure trading environment that is tailored with a wide range of trading tools, educational resources, and much more.
Here are some of the many advantages of trading with AvaTrade:
- Competitive Spreads
- Access to powerful trading platforms including the MT4 and MT5 as well as the AvaTradeGO (mobile), Mac Trading and AvaOptions
- Free demo account
- Trading online with a globally regulated forex trading broker
- Leverage of up to on the MSCI Index
- Comprehensive education centre
- Flexible and secure payment methods for deposits and withdrawals
- Outstanding, multi lingual professional and responsive support
- You can access a choice of trading instruments, including commodities trading, indices, bonds, ETFs, stock trading, forex trading & cryptocurrencies.
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Main MSCI FAQ
- What is the MSCI?
The term MSCI is an acronym for Morgan Stanley Capital International. MSCI is a research firm that provides a number of market related services, including the creation of the popular benchmark MSCI Emerging Markets Index. In addition to the creation of indices, MSCI also provides investment data and analytics services to institutional investors and hedge funds. Besides the widely known MSCI Emerging Markets Index the firm publishes many other indices which focus on different geographic areas and stock types such as small-caps, mid-caps, and large-caps.
- How can I trade the MSCI Emerging Markets Index?
If you’re planning on trading the MSCI Emerging Markets Index it is important to understand that the index is heavily skewed towards Asian markets, particularly China. With over 30% of the index weighting coming from Chinese listed stocks a focus on the economy in China is the first step needed when trading this index. There is also a heavy weighting towards technology and financial stocks, with the two sectors making up over 50% of the index weighting. The easiest way to trade this index is through ETFs or CFDs.
- How can I trade the MSCI Frontier Markets Index?
The MSCI Frontier Markets Index gives investors broad diversification across 29 Frontier market countries, with 115 constituents represented in the index. The most cost effective way to trade this index is through CFDs and ETFs. The index has a heavy weighting in financial issues, and on a geographic basis its largest (nearly 25%) country weighting is Argentine, followed by Kuwait. Because of the diversity of the index one of the best ways to trade it is with a momentum based approach.