Saudi Arabia’s inclusion in the FTSE Russell’s emerging market index failed to move local markets as Tadawul—the local stock market—fell by 0.37% today.
Earlier today, it was announced that the Kingdom would be upgraded from its previous status as ‘Unspecified’ to emerging markets by March 2019. The move is expected to attract billions of dollars of fresh foreign investment to the Kingdom—ranking it among the 10 largest emerging stock markets.
In September 2015, Saudi Arabia was added into the FTSE Russell Watch List soon after the Qualified Foreign Investor (QFI) program was introduced in the Kingdom. The country continued to maintain its status in the Watch List through the FTSE’s 2016 country classification.
Sarah Al Suhaimi, Chairperson of Tadawul said: “Over the past year, Tadawul has continued to work closely with Saudi government bodies and leading emerging market investors to introduce capital market reforms to bolster the effectiveness of the market and foster an attractive investment climate for local and international investors.”
Inclusion of the Kingdom into the index will take place in five tranches, starting March 2019 until December 2019. Upon full inclusion Saudi Arabia will have an index weight of 2.7% in the emerging markets and an additional 1.35% could add up to an estimated 4.6% post the much anticipated Saudi Aramco IPO.
Gaurav Shah, CEO, Al Rajhi Capital said, “The decision will improve liquidity, lower equity risk premium associated with the Saudi stock market, improve corporate governance and is an important step to further institutionalize the market.” He added: “Given that the inclusion is in tranches, we expect foreign investor flows to sustain for an extended period.”
Saudi Arabia’s inclusion into the FTSE Russell EM index comes amidst expectations that the index compiler MSCI might upgrade the Kingdom to emerging markets this June.
Moscow-headquartered Renaissance Capital mentioned in a note that FTSE Russell’s announcement strengthens the possibility of Saudi Arabia getting an upgrade within the MSCI Emerging Markets.
The world’s top oil exporter is looking to diversify its economy away from its dependency on oil industry, which accounts for 43% of the country’s GDP and 75% of the Kingdom’s exports. Saudi Arabia is increasing its private sector’s GDP contribution from the current 40% to 65% as part of an economic vision.