The Kingdom of Saudi Arabia was officially named to the watch-list for MSCI’s Emerging Market Index. The move marks a significant milestone for the Saudi market, which will now look for full inclusion in the Index within the next twelve months. This will make some notable impacts in the broader emerging market community: of note, the Saudi Stock Exchange/Tadawul expects the coming year to see a realignment in the weighting of emerging markets countries, as well as a sharper uptick in interest from foreign investors in the kingdom’s Qualified Foreign Investor (QFI) program.
“Saudi Arabia’s addition to the MSCI Watch List is an important milestone for Tadawul, and reflects the Kingdom’s significant progress in capital market reform in support of Vision 2030,” said Sarah Al Suhaimi, chairperson of Tadawul. “Potential inclusion in MSCI’s Emerging Market Index signals to international investors that the country’s capital market has attained greater maturity in terms of efficiency, governance and regulatory framework.”
MSCI’s moves come amid a series of market reforms that Tadawul and the Capital Market Authority (CMA) have undertaken as part of Saudi Arabia’s “Vision 2030” economic transformation program. The program, among other initiatives, seeks to bring the Saudi market into alignment with its emerging and developed market peers as well as gain recognition for the country as an indexed emerging market.
The addition to the MSCI Watch List and anticipated inclusion in the MSCI Emerging Market Index will ultimately make Tadawul, its constituent listed companies and investors who trade on it, benefit from what is anticipated to be a greater allocation of the weighting of global emerging market funds to the Exchange. Overall, growth in emerging markets globally is expected by the International Monetary Fund to improve for the second consecutive year, rising to a projected 4.5 percent in 2017, compared to 4 and 4.1 percent in 2015 and 2016, respectively.
As oil prices remain low globally and enter what markets analysts say is a bear market, it is now being speculated that OPEC will make more cuts. The current oil policies of Saudi Arabia may continue, say market analysts, on the heels of the Saudi King naming his son heir to the throne on June 21st. It is Mohammed bin Salman, now to be Crown prince – replacing his nephew, Mohammed bin Nayef, as first in line to the throne, that has pushed the Kingdom’s Vision 2030 initiative.
Saudi Arabia in June 2015 opened its market to international investors through its Qualified Foreign Investor (QFI) program. To date, more than $5.48 billion worth of investable assets has been recorded. The value of QFI holdings increased more than 3.5 times during the first quarter of 2017, while value traded on the exchange increased by 19.9 percent month-over-month in May 2017.
The Saudi Stock Exchange remains the sole entity authorized in the Kingdom to act as Saudi Arabia’s securities exchange, listing and trading in securities. The Saudi stock market is the 23rd largest stock market among the 64 members of the World Federation of Exchanges (WFE) and is currently the dominant market in the Gulf Cooperation Council (GCC) comprising 42 percent of total GCC market capitalization and 81 percent of value traded. The Exchange is the tenth largest stock market amongst its emerging market peers.