A special set of Morgan Stanley Capital International (MSCI) regional indices that exclude Malaysia will be available from October 1, highlighting the country's growing estrangement from the global financial system. Capital International Perspective (Cipsa), which compiles the widely followed set of investing benchmarks for Morgan Stanley, said the move was designed to help investors adjust to Kuala Lumpur's recent clampdown on currency and stock market trading. It follows Cipsa's September 4 decision to remove Malaysia permanently from its MSCI Developed Market series of indices. A set of Emerging Market Free (EMF) indices and All Country (AC) Free indices that included Malaysia would remain available, Cipsa said, although the situation remained under review. 'These ex-Malaysia indices are designed to address the challenges faced by investors due to the recent imposition of currency and capital controls,' Geneva-based Cipsa said. 'These indices are more accurate benchmarks for investors who wish to exclude Malaysia's impact on their portfolios.' Kuala Lumpur said on September 1 that it was imposing capital controls, banning the use of the ringgit outside Malaysia. It also said that while foreigners might continue to invest in the country's shares, proceeds from stock sales must be held onshore in ringgit for 12 months before repatriation. The moves, designed to arrest the fall of the ringgit, reverse the equity market's slide and restore economic stability, have prompted many regional funds to review their Malaysian operations. 'These special MSCI ex-Malaysia indices are intended to help investors track EMF and All Country Free index performance without Malaysia,' Cipsa said. 'However, the creation of these special indices should not be interpreted as an indication of Malaysia's future status in the MSCI EMF and AC Free indices.' Merrill Lynch said that if Malaysia was removed altogether from the MSCI family of indices, index-tracking funds could be forced to sell any remaining Malaysia holdings. It said if they did so, the funds could not be repatriated swiftly.
