Saudi MSCI inclusion will raise foreign stock ownership and boost inflows

23 June, 2018, 06:48 | Author: Regina Silva
  • Saudi MSCI inclusion will raise foreign stock ownership and boost inflows

She was proud that MSCI had upgraded Saudi Arabia after only one year on its watchlist, which she said was the shortest period on record.

However, the currency crisis, worldwide volatility and other internal political issues complicate the situation again this year.

If reclassification to "emergent" occurs, this will imply a greater arrival of investments because many funds will be authorized by their bylaws to include Argentine stocks in their portfolios.These are funds that prospectively can only invest in emerging markets, which in the medium term the local stock market would gain in liquidity: according to some foreign banks, they would reach around USA $ 4,500 million. It is available in USA dollars on the London Stock Exchange.

"Saudi Arabia is in the early stages of an exciting transformation", he said.

MSCI provides almost 100,000 daily indexes of stocks, bonds and other assets worldwide.

The kingdom, which was also recently added to the FTSE Russell as a "Secondary Emerging" market in March 2018, will be included in MSCI's Emerging Market Index in two phases concurring with the May 2019 Semi Annual Index Review and the August 2019 Quarterly Index Review.

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Likewise, Darius McDermott, managing director at Chelsea Financial Services, opposed this as he said the MSCI inclusion is "not super exciting news" and the inclusion of Saudi Arabia is likely to be based on the "heavily discussed floatation" of part of Aramco, the country's national oil. "This will create a much deeper and more liquid market", he said.

Mohamad Al Hajj, equities strategist at the research arm of EFG-Hermes Holding, estimated that upgrades by FTSE and MSCI could lead to passive and active inflows of between $30 billion and $45 billion. While the inclusion could increase the pace of reform in the Saudi markets like increased foreign ownership levels and transparency.

CNBC says the inclusion comes amid high anticipation over the market listing of Aramco, which could be the largest publicly-traded company globally.

Saudi Arabia and Argentina were upgraded to emerging market status, officially joining the emerging markets ranks in May 2019, according to a company statement.

The move follows a series of stock market reforms by Tadawul and its regulator, the Saudi Capital Market Authority, to make it easier for foreigners to invest. "Saudi's inclusion in MSCI will definitely prompt large global investors to invest in the Kingdom, with a rub-off effect on the whole region". Markets are expecting the country's central bank to raise its benchmark interest rate later in the day to the highest in more than nine years to counter a slump in the peso and match a U.S. Federal Reserve hike. An upgrade will allow funds that track more than $1 trillion to invest in the nation's stock market, leading to about US$3.5 billion of inflows, according to Ernesto Allaria, the president of stock operator BYMA. This stands in stark contrast to capital inflow to equity funds in advanced countries. Accordingly, the share of South Korean stocks can decrease further.

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