Saudi upgrade to MSCI EM index to attract liquidity to region

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Time: June 22, 2018

Analysts say MSCI inclusion to increase fund flows to Gulf, raise weight of Gulf on EM index

Dubai: The inclusion of Saudi Arabia’s equity index in the MSCI Emerging Markets index is expected to attract billions of dollars’ worth of new investments into the Kingdom’s markets as well the broader Gulf markets.

Analysts said the upgrade to Emerging Market (EM) status is a “huge win for its capital markets,” and that it increases the weight of Gulf markets in the MSCI emerging market index.

“Looking at the GCC and Mena (Middle East and North Africa) regions more broadly, we think that the MSCI decision to upgrade Saudi Arabia will prove a transformative catalyst for exchanges amid rising global investor interest,” said Salah Shamma, head of investment for Mena at Franklin Templeton’s emerging markets equity.

“With improving fundamentals such as positive corporate earnings, higher oil prices, and non-oil GDP (Gross Domestic Product) growth, we believe a re-rating of regional markets is also warranted.”

Index provider MSCI on Thursday said it will include Saudi Arabia in its EM index starting from June 2019, attributing the upgrade to Saudi’s implementation of a number of regulatory and operational enhancements.

MSCI said Saudi Arabia will represent a weight of around 2.6 per cent of the index. MSCI’s indices are used by investment funds around the world, with around $1.7 trillion (Dh6.2 trillion) worth of funds benchmarked against its EM indices.

“Saudi has very low foreign ownership — less than 2 per cent of market cap, and hence, the upgrade has the potential to create around $30 billion of active and passive inflows into Tadawul by August 2019,” said Aarthi Chandrasekaran, vice president at Shuaa Capital.

“Overall, Saudi’s inclusion is positive for the region, as GCC weights in MSCI-EM have inched up significantly, and will be difficult to ignore by the global fund managers.”

This article was first published in Gulf News

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