Saudi Tadawul to attract $40bln inflows on MSCI EM inclusion Moody's

Riyadh –  The inclusion of the Saudi Stock Exchange (Tadawul) in the MSCI Emerging Markets (EM) Index will have a positive impact on its future investments, Moody's Investors Service said in a recent report.

The New York-based rating agency noted that the addition to the MSCI EM Index will increase the liquidity and trading volume of Saudi equities in the index, in addition to attracting foreign investments.

The move will also attract credit positive for Saudi asset managers such as NCB Capital (MQ1) and Jadwa Asset Management (MQ1) and managers involved in cross-border products, the report, released late on Monday, found.

The inclusion will facilitate investors’ accessibility to the Saudi stock market, which in return will help in raising foreign-investor ownership in Tadawul, Moody's explained.

In May, MSCI Inc., the US-based index compiler, added Saudi Arabia’s local equities to its MSCI Emerging Markets (MSCI EM) Index for the first time.

“We expect broad demand will be credit positive for the asset managers because it will allow them to offer new investment products, which will add diversification benefits,” Moody's said.

The US rating agency said that asset managers that build strategies around the Saudi market will likely boost their assets under management.

Moreover, international asset owners managing passive investment strategies in the emerging market sector will step up their investment universe, diversifying assets, Moody's added.

“We estimate that about $30-$40 billion will flow into the Saudi stock market because asset managers and institutional investors following this benchmark will rebalance their portfolios to minimise their tracking error,” the rating agency highlighted.

Moody's noted that inflows will make the Saudi equity market, which currently has a $700 million per-diem average traded volume, deeper and more liquid.