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MSCI welcomes Saudi reforms, to review emerging market inclusion

International equity index compiler MSCI said it welcomed reforms of the Saudi Arabian stock market and reiterated that it could launch in June a review of whether to include Saudi Arabia in its emerging market index.

“MSCI specifically recognizes the extent and the pace of change undertaken by the Saudi Arabian authorities to open the local equity market to international institutional investors. MSCI will continue to monitor these positive developments,” it said in a statement late on Wednesday.

On the possibility of classifying Saudi Arabia as an emerging market, which would draw billions of dollars of international funds to the bourse, MSCI said:

“Such a proposal could be considered for inclusion in the review list as part of the upcoming cycle that will be launched in June 2017. The inclusion in the review list would be conditional on positive early feedback received from market participants on their effective experience of investing in Saudi Arabian equities.”

Over the past 12 months, Saudi Arabia has announced fresh steps to make its market more attractive to foreign investors.

Among them, the Saudi Stock Exchange has said it aims to extend settlement of trades to within two working days of execution, from same-day settlement, before June. It has asked the public for comments by Feb. 8 on draft rules for introducing covered short-selling and the borrowing and lending of stocks.

After the launch of a review, MSCI usually takes 11 months before announcing a decision, and actual inclusion in an index then tends to come one year later. This could mean Saudi Arabia entering the emerging market index in mid-2019, though MSCI has the flexibility to move faster if it wishes.

Rival index compiler FTSE has said it will decide this September whether to upgrade Saudi Arabia to the status of a secondary emerging market.