MSCI Lifts Argentina, Saudi Arabia To Emerging Markets Status

Randal Sanchez
June 23, 2018

The move, announced early Thursday morning Riyadh time, is forecast to attract as much as $40 billion in foreign investment into Saudi stocks, following a series of reforms passed by authorities to bring the Kingdom's capital markets more in line with global standards.

Abhishek Kumar, sector head of emerging markets debt, fixed income beta at SSGA, said the "developments in equity world (are) likely to be closely watched by the fixed income index providers". "Market performance has been very strong since the beginning of 2018, and, with MSCI inclusion along with an improving Saudi economy, we expect the market to outperform other emerging markets", Mr Sidani said. In particular, the secondary KOSDAQ market ended down 2.96 percent at 815.39 as most stocks were bearish except some bio and game stocks that had favorable factors.

Inflows to Saudi Arabia could, however, be bolstered further by the listing of state oil giant Saudi Aramco (IPO-ARMO.SE), which is expected to be the world's largest publicly-traded company.

The MSCI promotion would follow a similar move by FTSE Russell in March and be a second achievement for the kingdom, which has been implementing a series of reforms to develop its capital markets in line with its Vision 2030 economic diversification strategy.

"International investors were impressed by the speed of change in the accessibility of the Saudi Arabian equity market and the level of commitment that the Capital Market Authority (CMA) and the Saudi Stock Exchange have demonstrated", he said.

The inclusion, coupled with the International Monetary Fund deal, is expected to lead to capital inflows into the country, helping to ease pressure over the central bank to stabilize the currency, Jim Barrineau, head of emerging-market debt at Schroders in NY, wrote in a note.

Many money managers say Saudi Arabia is a shoo-in.

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Smaller developing nations, called frontier markets, vie for emerging-market status because it can mean billions of dollars of foreign-investment flows from index-tracking funds.

Foreigners were net buyers of Saudi stocks in nearly 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 overseas have been coming in slowly overall, with total foreign ownership of Saudi stocks at about 5 percent - below that of neighbors such as Qatar and the United Arab Emirates.

Still, buyers from overseas 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.

Market authorities in Saudi Arabia have introduced a series of reforms in the past 18 months to bring local capital markets more in line with global norms, including lower restrictions on worldwide investors, and the introduction of short-selling and T+2 settlement cycles.

It was announced last night that Saudi Arabia would be added to the MSCI Emerging Markets for the first time. "The upgrade is positive for broadening Saudi Arabia's investor base, particularly institutional investment, which tends to be more stable in nature", Malik told Khaleej Times.

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