Conant, a Columbia University economist, explained that most MSCI benchmarks take the form of indexes that are constructed by weighting each country in a given index by the size of its capital markets. Therefore, countries with large stock markets such as Japan will be heavily weighted in the index. Changes in stock prices in these countries have a major impact upon the weightings.

FSF is related to the Caux Round Table, a grouping of international business leaders championing the cause of what it terms "moral" capitalism.

According to FSF, indexes are constructed by weighting them in accordance with their rankings according to FSF standards - namely, data dissemination, monetary and fiscal transparency, insolvency framework, accounting, corporate governance, auditing, money laundering, payment system, banking supervision, securities regulation and insurance supervision.

In this context, Thailand, for example, is ranked in the middle of emerging countries - 46th out of the total 83 countries - with a score of 42.5 out of a possible 100. It should be noted that many nations have much poorer rankings, including China and Taiwan - which have scores of 24 and 15 respectively, placing them at 63 and 70 in FSF's rankings.

Given the FSF's different approach, a country like Japan, which is ranked 39th, with a score of 50, will be lightly weighted even though its stock market is huge. As a result of this approach, changes in the Japanese stock market or other lightly-weighted countries will induce only small changes in the overall index.

For testing purposes, Conant said the FSF has constructed eight indexes that contain the same countries as the comparable MSCI index, but have dramatically different weightings. For example, Thailand's weighting in the FSF's recent emerging market fund is about 4 per cent, compared to a significantly smaller weighting in the MSCI index. When the performance of the FSF index was compared with the original MSCI by an independent service, Zephyr StyleAdvisor, it was found that FSF's approach resulted in a superior performance.

In other words, there is a strong trend suggesting that countries that rank highly according to FSF standards will have greater financial success than those that rank poorly.

In the case of Thailand, the areas of auditing, banking supervision, and insurance supervision were rated as "having insufficient or no information", resulting in no scores in these categories. Money laundering is the only category in which the FSF judged there was no compliance. However, no compliance still carries a minimal score.

Conant noted that the "no information" rating does not mean there are no efforts in these areas, but it means that any such efforts have attracted no attention.

On auditing, which is part of the assessment of institutional and market infrastructure, the FSF noted in its executive summary that there is no publicly-available information on the extent of adoption of International Standards on Auditing, even though a self-assessment by the Thai Securities and Exchange Commission shows that the Thai standards of auditing were adopted from the International Federation of Accountants' standards.

On banking supervision, it noted that there is no comprehensive source of information for this standard in Thailand, even though the International Monetary Fund was due to conduct an assessment programme last year.

On insurance, it noted that there is similarly no comprehensive information on Thailand's intent to comply with the core principles of the International Association of Insurance Supervisors.

In terms of data dissemination, Thailand was rated as being in "full compliance", while in monetary transparency the country was given a rating of "compliance in progress". Fiscal transparency and corporate governance were both judged to have been "enacted". As for the country's insolvency framework and accounting, the ratings for both were "intent declared", which results in a lower score than "enacted".

The payment system was rated "compliance in progress" while securities regulations got an "enacted" rating.

Nophakhun Limsamarnphun

 nop1122@yahoo.com