The transition of Saudi Arabia to secondary emerging market status within FTSE Russell, which began on Monday, is expected to draw up to $7 billion of passive fund inflows into the kingdom, the global index provider told Zawya, noting a positive initial response.

The kingdom's stock exchange (Tadawul) is the Arab world’s largest bourse with a total market capitalisation of over half a trillion dollars.

“The transition of Saudi stocks into the FTSE global equity benchmarks is taking place in 5 tranches to ensure a smooth, orderly process for investors. At the end of this process, in March 2020, the projected passive inflows are around $6-7 billion,” FTSE Russell told Zawya in emailed response to questions.

On the passive fund inflows anticipated from the first phase of the transition, the index provider said that the “first tranche was 10 percent, so this would be $600-700 million”, it said.

The second 15 percent tranche will take place next month, while the remaining 75 percent will be implemented in three additional 25 percent tranches in June 2019, September 2019 and March 2020.

“Based on current valuations, by the completion of the fifth tranche in March 2020, Saudi Arabia will be the ninth-largest emerging market out of 25 markets in the FTSE Emerging Index,” FTSE Russell’s emailed comments said.

In terms of stocks, 80 Saudi securities have been added into FTSE Global All Cap and FTSE Emerging All Cap indexes, and 44 securities added into FTSE All-World and FTSE Emerging indexes, the index provider said.

Saudi securities make up a weight of 2.86 percent within the FTSE Emerging All Cap Index, and a weight of 0.31 percent of Global All Cap index, a document sent by FTSE Russell showed.

“It is a little too early for us to comment on the response to the inclusion, but initial response has been positive,” the email said.

This Monday, global index provider S&P Dow Jones Indices (S&P DJI) also started the first phase of including eligible Saudi stocks into S&P Dow Jones Emerging Market Indices’ (DJI) Global Benchmark Indices (BMI), with the second tranche set to take place in September this year.

After the first day of inclusion on both indices, the Saudi market finished 1.1 percent higher on Monday (Read more here).

The Saudi stock market ended last year 8.4 percent higher significantly outperforming both the MSCI World market (down 10.4 percent) and MSCI Emerging Market (down 16.6 percent) indices. The bourse drew the interest of foreign investors upon announcements by FTSE Russell (in March), MSCI (in June) and S&P Dow Jones (in July) that the market would be upgraded to their respective emerging market indices in 2019. (Read more here).

Earlier this year, index provider MSCI launched a new index of Saudi biggest publicly traded companies ‘MSCI Tadawul 30 Index’ that provides investors with a benchmark of the largest liquid companies in Saudi Arabia. (Read more here).

A FTSE Russell Saudi Arabia index allowing investors to trade futures contracts on a Saudi market benchmark was also launched on Nasdaq Dubai last month (Read more here).

(Reporting by Nada Al Rifai; Editing by Michael Fahy)


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