Saudi Stock Exchange named to MSCI watch list index by 2019

Global index compiler MSCI said on Tuesday it would consider upgrading Saudi Arabia to emerging market status.

MSCI will announce its decision in June 2018 and any move to upgrade would take effect in two phases in May 2019 and August 2019, a move that would attract tens of billions of dollars of fresh foreign money as the country seeks to diversify its economy beyond oil.

Riyadh opened its market to direct investment by foreign institutions in June 2015 and has been bringing its settlement and other systems closer to international practice since then. So many fund managers expect a positive decision.

MSCI estimated 32 major Saudi stocks would gain emerging market status, giving the country a potential weight of 2.4 percent in its index.

Chief investment officer for Middle Eastern and North African equities at Franklin Templeton Investments, Bassel Khatoun said that inclusion in the MSCI Emerging Markets Index would be a transformative catalyst not just for Saudi Arabia’s stock market but for exchanges throughout the entire region.

With approximately $2 trillion in active and passively managed money tracking it, MSCI’s EM Index is a significant dictator of equity market flows. Inclusion into MSCI EM will put Saudi, and the MENA region, firmly on the radar of international investors.

Listing Aramco in Riyadh would approximately double Saudi Arabia’s weighting in the emerging markets index, fund managers estimate, possibly making the kingdom a bigger presence in the index than Russia and Mexico.

Fund managers estimate an MSCI upgrade as well as an expected decision by FTSE this September to lift Riyadh to secondary emerging market status could bring over $50 billion of foreign money into the country in the next few years. That estimate includes passive funds which track indexes as well as actively managed funds.

The Saudi market currently has a capitalization of about $445 billion. With the economy and state finances squeezed by low oil prices. Riyadh is eager to attract foreign capital, partly to help improve the management of Saudi companies.

But an MSCI upgrade would not guarantee a strong rally in share prices from current levels. The bourse is not cheaply valued – its 12-month forward price-earnings ratio is 13.9 while the MSCI Emerging Market Index .MSCIEF is at about 12 and the economy faces difficult times in the next few years.

Source : Reuters


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