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Inclusion in MSCI’s developing-country indexes would “put Saudi Arabia in the top 10 emerging markets, even excluding Aramco,” Al Hajj said, adding that passive inflows alone would be equivalent to two-and-a-half to three times current active holdings by foreigners in the Saudi market. “It would finally place the Middle East and North Africa on the map as an important subset of emerging markets and EMEA.”
Saudi Arabia allowed money managers outside the Gulf to own local shares directly only two years ago. Since then, authorities have relaxed the guidelines even more. Still, total foreign ownership has stalled at about 5 percent.
As crude oil prices declined this year, the Tadawul gauge has dropped, lagging behind an average of peers as measured by the MSCI Emerging Markets Index, which increased 17 percent through June 19.
The addition to the watch list should result in “substantially improved valuations, liquidity and foreign inflows to the country’s market,” according to Jaap Meijer and Michael Malkoun, analysts in Dubai at Arqaam Capital Ltd. They estimate Saudi Arabia would have a weighting of 2.2 percent in that emerging markets index, excluding Aramco.
This article was provided by Bloomberg News.