Saudi bourse joins MSCI emerging market index

23 June, 2018, 13:36 | Author: Kathy Ellis
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MSCI said its decision came after the kingdom's equity market - the largest in the GCC region with a market capitalisation of SAR1.95 trillion (around $520bn)- implemented a number of regulatory and operational enhancements.

The MSCI Argentina index is down 37% this year, the peso has fallen 33% against the dollar and Argentine bonds have. "Our research has shown that markets have tended to perform strongly in the run-up to inclusion in the MSCI EM Index".

Numerous world's largest fund managers benchmark themselves against index compilers and will automatically invest in Saudi stocks following. Separately, MSCI said it would upgrade Argentina to the category as well.

Suhaimi also said the time period that the Saudi stock market was supervised by the MSCI Index is the shortest in comparison to other markets. "This reflects roughly eight per cent of total inflows into broad emerging market equity funds so far into 2018", she said.

Many money managers say Saudi Arabia is a shoo-in.

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The region's biggest stock market is up nearly 14.5 percent so far this year and has outperformed Gulf markets in anticipation of the MSCI inclusion, which could trigger billions of dollars of inflows into Riyadh's Tadawul-listed stocks. "The upgrade is positive for broadening Saudi Arabia's investor base, particularly institutional investment, which tends to be more stable in nature", Malik told Khaleej Times. Saudi is only 2% owned by foreign investors with the next lowest emerging market, Qatar, being 10% owned and markets like Turkey being 65% foreign owned.

Dominic Bokor-Ingram, portfolio adviser at Fiera Capital, said: "Saudi Arabia is the largest, most liquid emerging market in the world with practically no foreign involvement to date". Being upgraded will result in more investments, and therefore more liquidity. Since then, it eased requirements for these investors with measures such as lowering the minimum amount of assets under management to get the status of qualified foreign investors, or QFI, and aligned trade settlement times with global standards. Foreigners are already net buyers of Saudi stocks, having poured in $3 billion this year through June 7, according to data from the stock exchange and compiled by Bloomberg.

In Argentina, hopes for an upgrade had faltered as the peso tumbled, making the central bank jack up interest rates to a world-beating 40 per cent and leading the government to turn to the International Monetary Fund for a record US$50 billion credit line.

Market authorities in Saudi Arabia have introduced a series of reforms in the past 18 months to bring local capital markets more in line with global norms, including lower restrictions on worldwide investors, and the introduction of short-selling and T+2 settlement cycles. The recent selloff in stocks and an "attractive" exchange rate means that Argentine stocks offer "interesting opportunities" for foreign investors, according to BlackRock Inc.

"We won't just see ETFs, we will see more diversity in investment vehicles".

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