Complex Made Simple

$14 trillion in assets track MSCI indexes but is emerging Saudi attractive?

Many stock market investors are not waiting till May for before buying up SAUDI ETF stocks ahead of MSCI inclusion

MSCI will add 69 stocks to exchange-traded funds (ETFs) that track the MSCI Emerging Markets Index with a total market capitalization of $84 billion Millennium Management LLC grew its position in shares of iShares MSCI Saudi Arabia Capped ETF by 101.6% in the 4th quarter BlackRock has recently launched a new ETF – the iShares MSCI Saudi Arabia Capped UCITS ETF on the London Stock Exchange

FTSE Russell and S&P Dow Jones began in March adding Saudi stocks to their emerging markets indexes, but the true barometer of how emergent that market is the MSCI benchmark. Can Saudi attract MSCI investors and why?

The wait is over 

Saudi is on the doorsteps of the MSCI Emerging Markets Index, which will add Saudi stocks to its Emerging Markets Index and other indexes in waves, starting end of May, followed by end August. Some $14 trillion in investor assets track MSCI’s indexes according to Barrons.com.

That means Saudi stocks will start showing up in as well as others—and possibly in the 115 actively managed mutual funds that use the index as a benchmark for performance, too.

MSCI will add 69 stocks to exchange-traded funds (ETFs) that track the MSCI Emerging Markets Index with a total market capitalization of $84 billion, or roughly 15% of the $530 billion Tadawul.

Two principal ETFs track the MSCI Emerging Market index. The first is the $35 billion iShares MSCI Emerging Markets (EEM) and the second is the $60 billion iShares Core MSCI Emerging Markets(IEMG).

Sebastien Lieblich, MSCI’s global head of equity solutions on adding Saudi stocks to the index, in addition to will help bring foreign investment into the country: “The positive is diversification to the index, greater regional and country exposure.”

“Saudi stocks have had a good run of late: The $600 million iShares MSCI Saudi Arabia ETF (KSA) gained 14% in the last year, while assets in it have doubled just in the last couple of months,” said Barrons.

115 managed stock funds are benchmarked against the MSCI Emerging Markets Index, but only 8 included Saudi stocks, but Saudi is expected to reach 3% of the trade in the index.

Currently, only 1% of Saudi stocks are owned by foreign funds, or 10% the average for other emerging market nations.

Pre-empting SAUDI MSCI

Millennium Management LLC grew its position in shares of iShares MSCI Saudi Arabia Capped ETF by 101.6% in the 4th quarter, according to the company in its most recent filing with the Securities and Exchange Commission (SEC), Finance Daily reported. 

The institutional investor-owned 46,627 shares of the company’s stock after purchasing an additional 23,500 shares during the quarter, and now owns approximately 0.70% of these shares worth $1.3 million.

Finance Daily said HSBC Holdings PLC increased its holdings in iShares MSCI Saudi Arabia Capped ETF by 41.8% in Q4 2018 and now owns stock worth $10.3 million. Citadel Advisors LLC made a $219,000 purchase of the same ETF in Q3 2018 while Victory Capital Management Inc. purchased $4,704,000 of same in Q4 2018.

New Saudi ETF in Europe 

BlackRock has recently launched a new ETF – the iShares MSCI Saudi Arabia Capped UCITS ETF on the London Stock Exchange, according to ETFstrategy.com, the second SAUDI ETF for Europe.

“The fund tracks the MSCI Saudi Arabia 20/35 Index, comprising 30 large- and mid-cap stocks and accounting for approximately 85% of the free float market capitalization in Saudi Arabia,” says ETF strategy.

Stocks from the financial sector make up 48.2%. The largest stocks are Saudi Basic Industries (16.7%), Al Rajhi Banking (14.6%), National Commercial Bank (11.2%), Saudi Telecom (7.3%), and Samba Financial (6.5%).

ETF strategy explains that BlackRock already offers a Saudi Arabia ETF in the US – the iShares MSCI Saudi Arabia ETF (KSA US), tracking the broader MSCI Saudi Arabia IMI 25/50 Index which consists of 69 constituents. The ETF houses $500 million in assets under management.