Published: Sat, June 23, 2018
Finance | By Loren Pratt

Saudi Stocks Receive Emerging Markets Upgrade From MSCI

Saudi Stocks Receive Emerging Markets Upgrade From MSCI

Meanwhile, the MSCI Argentina Index has also been reclassified from Frontier Markets to EM status, following investors' confidence in the country's ability to maintain current equity market conditions. Argentina's bourse, which now has a market capitalization of US$ 98 billion, was relegated in 2009 after Buenos Aires introduced capital controls. For Saudi Arabia, the classification provides visible proof that Saudi Crown Prince Mohammed bin Salman's social and economic reforms under the Vision 2030 plan are working.

MSCI provides almost 100,000 daily indexes of stocks, bonds and other assets worldwide.

The index provider also said it will include the Kuwait in its review next year for a potential move to emerging from frontier markets. The remaining $11 billion in actively managed capital could enter Saudi market even without a MSCI inclusion, provided the prospectus of those funds allow it.

Saudi's inclusion in the emerging markets index could lead to about $45bn of new capital being invested into the kingdom, according to reports.

"Underlying (is) a negative mood, the rising US rates, USA liquidity, the stronger dollar - all of which is weighing on emerging markets as well".

In March, rival provider FTSE announced that it would upgrade Saudi Arabia to emerging market status, while S&P Dow Jones said in May that it was holding consultations with investors in a bid to determine whether it would do so as well.

Saudi Arabia opened its US$524 billion stock market to foreign investors three years ago. Foreigners were net buyers of Saudi stocks in nearly every week this year, with net inflows of about 11.4 billion riyals ($3 billion) as of June 7 on aggregate for 2018, according to data compiled by Bloomberg. Both have been members of the MSCI EM index since 2014.

Cronista estimated that if bumped up, Argentina would see an influx of anywhere between US$3.5 to US$5.5 billion, which will give a strong push to the market.

Saudi Arabia has been gradually opening up to foreign investments as it seeks to reduce their reliance on- one of its main sources of revenues.

Investment inflows could be bolstered further by the listing of state-owned Saudi Aramco, which is expected to become the world's largest publicly traded company. The Global X MSCI Argentina ETF advanced 7.4 per cent, while the iShares MSCI Saudi Arabia ETF advanced 2.4 per cent.

In Argentina, hopes for an upgrade had faltered as the peso tumbled, making the central bank jack up interest rates to a world-beating 40 per cent and leading the government to turn to the International Monetary Fund for a record US$50 billion credit line.

In a statement, Suhaimi congratulated the Saudi exchange on joining the MSCI index, which is "the most prominent worldwide indices, which directly follows our success in joining FTSE Resal Emerging Markets Index, which reflects the competitiveness of the Saudi stock market among global financial markets". The recent selloff in stocks and an "attractive" exchange rate means that Argentine stocks offer "interesting opportunities" for foreign investors, according to BlackRock Inc.

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