Saudi Arabia could see potential $10bn windfall from MSCI upgrade

Lloyd Doyle
June 23, 2018

The index provider also said it will include the Kuwait in its review next year for a potential move to emerging from frontier markets.

MSCI said on Wednesday it will begin including Saudi Arabia in that classification, sharply broadening the investor base for in a move that could be supportive to Tadawul's equity market, reported Reuters.

MR Raghu, the managing director of managing director of Marmore Mena Intelligence, a research house that focused on business in the MENA region, said that he expects Saudi Arabia to enter the market in several stages, beginning in March 2019 and ending in December 2019, to prevent Saudi Arabia's large market size from destabilising other markets as funds shift money to Riyadh.

Mohammed el-Kuwaiz, chairman of the Capital Market Authority (CMA), the government's regulatory body for the sector, said the decision will expand liquidity base in the Saudi bourse.

In May, MSCI said the recent market rout would make it more hard to determine whether to award Argentina emerging markets status again.

"It's of course the trade concerns here, we are looking for more escalations on trade dispute", said Jakob Christensen, head of EM research at Danske Bank, adding markets were closely watching countries like India and Russian Federation planning counter measures against Washington's trade actions.

MSCI's emerging equity benchmark index weakened 0.8 percent, having now chalked up losses for six of the past seven sessions.

It also noted the Saudi Arabia stock exchange operating model had been "resilient" since its launch in April 2016.

Inflows to Saudi Arabia could, however, be bolstered further by the listing of state oil giant Saudi Aramco IPO-ARMO.SE , which is expected to be the world's largest publicly-traded company. "We, at the CMA, will continue to further develop the Saudi Capital Market to ensure that the market facilitates investments, promotes confidence and protects investor and market participants". The Global X MSCI Argentina ETF advanced 7.4 per cent, while the iShares MSCI Saudi Arabia ETF advanced 2.4 per cent.

"Since MSCI added it to its watch list in June 2017, the necessary infrastructure has been upgraded and we believe all required criteria have been met". She was proud that MSCI had upgraded Saudi Arabia after only one year on its watchlist, which she said was the shortest period on record.

"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 worldwide standards", said Bloomberg.

"With $1.9trn of funds tracking MSCI's EM index, the 2.6% that Saudi will initially command is likely to result in equity flows of approximately $40bn", Khatoun said. An upgrade will allow funds that track more than $1 trillion to invest in the nation's stock market, leading to about US$3.5 billion of inflows, according to Ernesto Allaria, the president of stock operator BYMA.

Other reports by Iphone Fresh

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