Global index provider MSCI said on Wednesday it will reclassify Saudi Arabia as an emerging market from mid-2019, broadening the kingdom’s investor base ahead of the listing of state-controlled energy company Aramco, which could become the largest publicly-traded company in the world.

International investors' expectations were that "the current privatisation effort in Saudi Arabia will continue to grow the investable opportunity set available," Sebastien Lieblich, MSCI managing director and global head of equity solutions, said in a statement, Reuters reported.

MSCI's benchmarks are widely used, with some $14 trillion in investors' assets tracked against them. The index provider's blessing can launch billions of dollars from index-tracking funds into markets around the world, especially developing economies.

The Saudi index has been among the best performing in the Gulf region, up 13.3 percent year to date. Saudi Arabia could see $30-45 billion of portfolio inflows in the next two years if it reaches the same level of foreign ownership in stock markets as the United Arab Emirates and Qatar, according to investment bank EFG Hermes.

The MSCI Saudi Arabia Index will have a weighting of approximately 2.6 percent in the emerging markets index with 32 securities, following a two-step inclusion process in May and August next year.

Middle East stocks
Saudi stocks declined yesterday as investors moved to cut risk ahead of the MSCI announcement.

"Valuations of Saudi equities are at the higher end of historic ranges even though the medium-to-longer term underlying fundamentals for companies remain strong," Saleem Khokhar, head of equities at First Abu Dhabi Bank, told Reuters.

The main Saudi index shed 1.3 percent. Banks led the declines on the Riyadh bourse. Al Rajhi Bank lost 2.1 percent. Banque Saudi Fransi lost 4.3 percent, Riyad Bank lost 2.9 percent, and Saudi British Bank lost 4 percent.

In Dubai, negative sentiment continued to weigh on local stocks after local Sharjah-based carrier Air Arabia said it had invested in funds handled by Abraaj, the private equity group which last week filed an application for provisional liquidation.

The Dubai Financial Market General Index was down 0.6 percent to 2,923 points. "The rumours in the stock market surrounding the possibility of involvement or lending to Abraaj, especially through the banks, have been really affecting shares of banks since Monday,” a stockbroker who declined to be named due to commercial sensitivities, told Reuters.

Abu Dhabi's index shed 0.3 percent with the UAE’s largest lender, First Abu Dhabi Bank, falling 1.2 percent and property developer Aldar losing one percent.

In Qatar, the benchmark declined 2.4 percent, while Kuwait gained 0.2 percent. Bahrain declined 0.5 percent, Oman was mostly unchanged and Egypt gained 0.5 percent.

Global markets
On the international scene, Asian shares were subdued on Thursday as a lull in the Sino-United States trade tussle helped calm nerves enough for the Nasdaq to reach a record high, while tensions in the oil market grew ahead of an OPEC meeting that may expand crude supply.

MSCI's broadest index of Asia-Pacific shares outside Japan was 0.05 percent firmer, while Japan's Nikkei edged up 0.12 percent in thin trade.

Futures for the S&P 500 ESc1 added 0.14 percent as traders waited for new developments on global trade.

The mere absence of new threats from President Donald Trump on tariffs was enough to stem recent selling, with investors clinging to the hope that all the bluster was a ploy which would stop short of an outright trade war.

“Many participants see the Trump Administration’s hard line as part of the negotiating strategy,” Richard Grace, chief currency strategist at CBA, told Reuters.

On Wall Street, resilience in tech stocks helped the Nasdaq to an all-time peak, though the moves were modest. While the Dow Jones fell 0.17 percent, the S&P 500 gained 0.17 percent and the Nasdaq 0.72 percent.

Oil outlook
Prices fell on Thursday as Iran signaled it could be won over to a small rise in OPEC crude output, potentially paving the way for the producer cartel to agree a supply increase during a meeting on Friday.

However, prices were prevented from dropping further by record refinery runs in the U.S. and a large decline in crude inventories, a sign of strong fuel demand in the world’s biggest economy.

Brent crude futures LCOc1 were at $74.51 per barrel at 0152 GMT, down 23 cents, or 0.3 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude futures CLc1 were at $65.64 a barrel, down 7 cents, or 0.1 percent.

“We expect OPEC and Russia to gradually add supplies back to the market by next year, mostly offsetting the almost 1 million barrels per day (bpd) supply disruption in Venezuela,” Barclays bank said, according to a Reuters report.

The dollar hovered near an 11-month high against a basket of currencies on Thursday, supported by a rise in U.S. yields, while the pound struggled at its lowest level since November 2017 ahead of Bank of England’s monetary policy decision.

The dollar index against a group of six major currencies stood at 95.11 after rising to 95.299 overnight, its highest since mid-July 2017.

Precious metals
Gold prices dropped, remaining near a six-month low on Wednesday as the U.S. dollar hovered around 11 month peaks but was offset by festering global trade tensions, while platinum hit a 2-1/2-year trough.

Spot gold lost 0.2 percent at $1,272.44 by 17:36 GMT, while U.S. gold futures for August delivery settled down $4.10, or 0.3 percent, at $1,274.50 per ounce.

And in other news…
MSCI had more good news for the Gulf region as it was announced it will include the MSCI Kuwait Index in its classification review next year for a potential move from frontier to emerging markets.

Gain a deeper understanding of financial markets through Thomson Reuters Eikon.

(Writing by Shane McGinley)


A new version of the Trading Middle East newsletter is being launched on June 27, 2018. To keep receiving the newsletter after this date, please subscribe using this link.

Our Standards: The Thomson Reuters Trust Principles

Disclaimer: This article is provided for informational purposes only. The content does not provide tax, legal or investment advice or opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Read our full disclaimer policy here.

© ZAWYA 2018