Having completed its full inclusion on the MSCI emerging markets index, Saudi Arabia’s stock exchange, the Tadawul, is expected to attract an additional $5 billion (18.36 billion dirhams) in equity inflows, according to the Institute of International Finance (IIF). 

Saudi Arabia’s stock market, worth approximately $549 billion, is the largest in the region. It will have a weight of 2.8 per cent on the MSCI index.

Investor appetite for Saudi equities spiked in August, and foreign equity inflows to the kingdom surpassed those of India and China during first eight months of this year. The IIF has hailed this as a “remarkable” development given that Saudi Arabia’s economy is just a fraction of the size of the two other countries.

“In the absence of major domestic and external shocks and further deterioration in EM [emerging market] investment sentiment, Saudi Arabia can count on additional equity inflows from active investors whose portfolios are benchmarked to the MSCI EM index,” Garbis Iradian, IIF’s chief economist for MENA, said.

Khalid Abdullah al-Hussan, Tadawul’s CEO, told CNBC that the inclusion will help when it comes to IPOs and that the participation of foreign investors in the Saudi market would result in “flawless” public listings.

Thanks to foreign investors significantly increasing their exposure to Saudi equities before the MSCI upgrade, the kingdom has attracted $18 billion in foreign portfolio equity inflows so far this year

According to the IIF report, early positioning by investors had been “relatively slow” since the MSCI inclusion announcement last year. However, investors seem to have dismissed their concerns this year and inflows to Saudi Arabia would have been even higher had it not been for global trade conflicts and concerns regarding the escalation of regional tensions, Iradian said.

According to the IIF, after a positive performance in the first quarter of this year, renewed trade tensions sparked a sharp decline in equity flows to most emerging markets.

The kingdom received more than $4.5 billion in foreign equity inflows in May and $2 billion in the first three weeks of August, becoming the top equity investment destination among emerging markets, according to the report.

“We expect Saudi Arabia to continue reaping the benefits of the capital markets reform and the inclusion in global indices,” Iradian said.

 (Writing by Seban Scaria seban.scaria@refinitiv.com, editing by Daniel Luiz)

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 2019