Complex Made Simple

Saudi now a fully fledged MSCI member- What does that mean?

Tadawul gets emerging market status- Funds are flowing in

Tadawul, the region’s largest market, has completed the second and final phase of joining the MSCI Emerging Markets Index International investors have already committed around $18 billion to Saudi equities so far this year Tadawul, the largest stock market in the region worth approximately $549 billion, will have a weight of 2.8% on the MSCI index

The Saudi Stock Exchange (Tadawul), the region’s largest market, has completed the second and final phase of joining the MSCI Emerging Markets Index.

 “Full inclusion in the MSCI Emerging Market Index represents an important milestone in advancing the Saudi capital market and further opening Tadawul to international investors,” Khalid al-Hussan, Tadawul’s chief executive, said in an exchange filing on Thursday, as reported by Reuters.

Read: $16 billion in passive income to flow to Saudi Tadawul

Net buying volumes up on Tadawul

From the start of 2019 through July 31, trading activity of foreign investors totalled $56 billion, representing 21% of total trading, according to the filing.

“Foreigners have been net buyers every month this year, sending the Saudi index .TASI up nearly 20% at its peak in May. Since then, however, geopolitical and trade tensions have reduced the index’s year-to-date gains to 2.5%,” reported Reuters.  

Hussan had told Reuters in March that Saudi listed companies could see holdings by foreign investors rise to 10% when shares are fully included in MSCI and FTSE indices. Foreign ownership now is around 8%.

“International investors have already committed around $18 billion to Saudi equities so far this year, primarily from MSCI and FTSE trackers as well as Saudi dedicated ETFs,” said Antoine Maurel, MENAT head of global markets at HSBC.

Read Tadawul: Net selling by investors, net buying by Saudi institutions

But also ETF outflows 

Investors in a New York-listed exchange-traded fund (ETF) tracking Saudi Arabian stocks withdrew the most money on record, just as MSCI Inc. completed the upgrade of tadawul to emerging-markets benchmark.

Outflows from the iShares MSCI Saudi Arabia soared to $119 million on Aug. 27, the most for any day since its inception in 2015, Bloomberg Data show. It’s the biggest ETF focused on Saudi equities trading in the U.S., with $659 million in assets.

MSCI weight and IPO implications 

Saudi Arabia’s stock market — the largest in the region, worth approximately $549 billion — will have a weight of 2.8% on the MSCI index.

The inclusion will also help when it comes to initial public offerings (IPO), al-Hussan said.

His comments come as investors eagerly await the listing of state-owned oil giant Saudi.

Saudi Aramco is considering Tokyo — instead of early favorites London and Hong Kong — as the international destination to list its shares, The Wall Street Journal reported on Thursday. Domestically, Tadawul will list first at an expected end of 2019 date.