Saudi Arabia may be reclassified as emerging market by June 2017-MSCI

Thursday, May 14, 2015

Dubai: The Saudi Arabian equity market, which is slated to open to foreigners from June 15, may be reclassified to an emerging market by June 2017 if “all stars align”, the head of the index research at MSCI told Gulf News.

The Capital Markets Authority (CMA) is planning to allow in foreign investors from June 15, a move closely watched by the global fraternity, as the world’s biggest exporter of petroleum allows investors to own shares of Saudi Basic Industries and Saudi Telecom.

The Saudi Tadawul index has been the best performer in the region, with gains of more than 18.5 per cent so far this year, compared to the Dubai index, which has gained 11 per cent.

“In terms of timing, if all stars were to align, one could imagine the introduction of Saudi stand-alone index into MSCI’s flagship index of emerging markets would be in June of 2017,” Sebastien Lieblich, head of index research at MSCI told Gulf News. The MSCI plans to launch a standlone index for the world’s biggest exporter of crude oil.

“The upgrade would be based on the feedback from foreign institutional investors of their ability to access the market. Based on our 18 criterias and measures and stability of given markets,” Lieblich said.

After the inclusion, the weighting of Saudi Arabia would be equal to the likes of Poland or Turkey, with a weightage of around 7 per cent, analysts say.

But before that happens, MSCI would go through consultation of a structured and formal process and take feedback from all types of investors from active and passive asset managers, brokers, dealers, and within all regions like America, EMEA (Europe, Middle East and Africa), Asia, and speak to investors, market participants over a period of 6-12 months.

Increase inflows

Although foreign ownership limits have been set at 10 per cent in aggregate for now, “I believe it will eventually be raised to 49 per cent. At these levels, Saudi Arabia could account for 4 per cent of the MSCI Emerging Market index — that would be bigger than Turkey or Poland and would result in billions of dollars of flows,” Fahd Iqbal, Head of Middle East Research private banking, Credit Suisse told Gulf News.

The Saudi market trades about $3 billion of shares daily. Investors from outside the six-nation Gulf Cooperation Council currently gain access to shares listed on the $571 billion market through equity swaps and exchange-traded funds. Non-Saudis currently own 7.74 per cent of the stock market’s value.

Consequently following the announcement from the Capital Market Authority, the MSCI has decided to launch a stand-alone MSCI Saudi Arabia index — it would be a country index, similar to UAE and Qatar and won’t be included in any of the MSCI’s flagship indexes. The MSCI plans to launch it from June 1.

“Any inclusion in the MSCI’s emerging market index would be decided at a later stage,” he added.

The stand-alone would include 19 constituents including Saudi Basic Industries, National Commercial Bank and including Saudi Telecom.

By Siddesh Suresh ?Mayenkar Staff Reporter

Gulf News 2015. All rights reserved.