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Saudi Tadawul suddenly buyers’ market after MSCI nod

Saudi Arabia’s efforts to modernize its stock market and attract billions in investments were recognized by Index provider MSCI.

MSCI said on Wednesday it will begin including Saudi Arabia in that classification, sharply broadening the investor base for in a move that could be supportive to Tadawul’s equity market, reported Reuters.

The decision will be effective beginning in mid-2019.

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

“That should contribute to an increased weight of Saudi Arabia in the Emerging Markets Index in the future,” Sebastien Lieblich, MSCI managing director and global head of equity solutions, said in a statement.

Related: Does Index Inclusion in FTSE, MSCI answer Kuwait, Saudi liquidity needs?


MSCI’s benchmarks are widely used, with some $14 trillion in investors’ assets tracked against them. The index provider’s blessing can launch billions of dollars from index-tracking funds into markets around the world, especially developing economies.

The index compiler has more than $1.9 trillion in assets benchmarked to its group of emerging markets indexes, said Bloomberg.

“The addition of Saudi Arabia will add diversification to MSCI emerging market indices that are increasingly weighted to South Asian and tech-heavy markets such as China, South Korea, and Taiwan,” Todd Rosenbluth, director of fund research at New-York based CFRA, told Reuters.

Read: MSCI welcomes Saudi reforms, to review emerging market inclusion

Tadawul performance

The Saudi index .TASI has been among the best performing in the Gulf region, up 13.3% year to date, according to Reuters.

Saudi Arabia could see $30-45 billion of portfolio inflows in the next two years if it reaches the same level of foreign ownership in stock markets as the United Arab Emirates and Qatar, according to investment bank EFG Hermes.

“The MSCI Saudi Arabia Index will have a weighting of approximately 2.6 percent in the emerging markets index with 32 securities, following a two-step inclusion process in May and August 2019,” Reuters said.

Saudi will now join nations including China, India, Turkey, South Africa and Brazil.

MSCI also said it will include the MSCI Kuwait Index in its classification review next year for a potential move from frontier to emerging markets.

VIDEO: How did Saudi stocks push Tadawul over 8,000 for 1st time since 2015?

“Analysts estimate MSCI’s decision on Saudi Arabia will lead to billions of dollars from money managers worldwide and help improve liquidity in the biggest stock market in the Middle East and Africa,” said Bloomberg.

Inclusion “is a game-changer for Saudi Arabia’s capital markets,” Antoine Maurel, head of global markets for Middle East, North Africa, and Turkey at HSBC Bank Middle East Ltd, told Bloomberg.

Maurel estimates it will lead to $35 billion of inflows. “This will create a much deeper and more liquid market,“ he said.

FTSE Russell upgraded the country to emerging markets status in March.

Watch Video: Will Aramco only list its IPO on Tadawul? Can it afford to?

Tadawul pre-emptives

Saudi Arabia opened its $524 billion stock market to foreign investors 3 years ago.

“Since then, it eased requirements for these investors with measures such as lowering the minimum amount of assets under management to get the status of qualified foreign investors, or QFI, and aligned trade settlement times with international standards,” said Bloomberg.

Foreigners were net buyers of Saudi stocks in almost every week this year, with net inflows of about $3 billion as of June 7 on aggregate for 2018, according to data compiled by Bloomberg.

Still, buyers from abroad have been coming in slowly overall, with total foreign ownership of Saudi stocks at about 5 percent — below that of neighbors such as the UAE, members of the MSCI EM index since 2014.