Argentina and Saudi Arabia to join MSCI emerging markets index

23 June, 2018, 13:32 | Author: Natasha Holloway
  • Saudi Aramco Clears Another IPO Hurdle | OilPrice.com

The index will reclassify Saudi Arabia with implementation of its indexes starting in June 2019. Saudi Arabia hopes to sell 5 percent of the world's largest oil exporter, valuing the company at more than $2 trillion.

South Africa's rand fell 0.8 percent, extending early losses after data showed the current account deficit widened more than expected in the first quarter to register its largest shortfall in two years. Separately, MSCI said it would upgrade Argentina to the category as well.

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.

He said: "It's a change in the universe but frankly, it doesn't make that much difference".

Index maker MSCI Inc., a major indirect decision maker on asset flows due to the growth of passive equity investing, awarded emerging market status for the first time in almost a decade.

"It is a recognition of the progress Saudi Arabia has made in implementing its ambitious capital markets transformation agenda".

Maurel estimates it will lead to $35 billion of inflows. FTSE will bring Saudi stocks on board in several stages between March and December 2019, while MSCI said on Wednesday the kingdom would enter in phases coinciding with index reviews in May and August 2019.

Anita Yadav, head of fixed income research at Emirates NBD, told Khaleej Times that the inclusion of Saudi equities into the MSCI EM index could trigger passive inflows of $10 billion. Around $3bn in foreign flows have already come into the Saudi market in 2018, taking total foreign investment in the Tadawul stock exchange to approximately $9bn.

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"It is our job to ensure the market is ready for such events, and this is what we have done", he added. "The part privatisation of Aramco is vital for boosting the government's forex reserves and GDP growth outlook through higher investment".

In the past three years, the Saudi stock market "has become much more open and much closer to worldwide standards", said Mazen Alsudairi, head of research at Al Rajhi Capital Co.in Riyadh.

The decision, which came as part of MSCI's semi-annual index review, follows the implementation of regulatory changes in the Saudi Arabian equity market which opened to global institutional investors. The global listing of the oil giant has been shelved for the time being.

Other Gulf markets declined in largely muted trading as many investors are still on holiday for the Muslim festival of Eid.

"As of today, foreign investor ownership in the Saudi market is around $9.2 billion, and we expect this ownership to increase until the actual inclusion date". Allowing foreign funds into the Saudi stock market will facilitate the sale of the planned IPO.

"Saudi Arabia's market performance over the next few sessions is of little relevance in our view. In some ways, Saudi's local market meets these thresholds to a higher level than Argentina does".

"It is very good to have more opportunities for investors to invest", said Akira Takei, a fund manager at Asset Management One in Tokyo, which oversees around US$500 billion.

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