Investors’ appetite for Saudi equities spiked despite EM sell-off: IIF

Investors’ appetite for Saudi Arabia’s equities spiked once again in August ahead of the second phase of MSCI emerging markets index (MSCI EM) inclusion, the Institute of International Finance (IIF) said in its latest report on Wednesday.

Saudi Arabia has attracted $18 billion in foreign portfolio equity inflows so far this year, as foreign investors have significantly increased their exposure to Saudi equities ahead of the upgrade, IIF added.

“The inclusion of local stocks to broad equity benchmarks acknowledges the progress made by Saudi Arabia in reforming its capital market system,” IIF noted.

Following the upgrade in March of this year, FTSE Russell has already started adding Saudi equities to its index.

After the first phase in June, when MSCI added Saudi Arabia’s stock to its emerging markets index with an initial weight of 1.45 percent, the index compiler will complete the upgrade at the end of August by increasing the weight of Saudi equities to 2.8 percent of the total index.

“We expect the second phase of the upgrade to attract an additional $5 billion in equity inflows to the oil-rich kingdom,” IIF maintained.

Portfolio investments will be the main driver of foreign capital inflows increase to Saudi Arabia in 2019, IIF said, adding that portfolio re-allocation benefits and natural currency hedge are driving investors’ appetite for Saudi stocks.

Supported by the MSCI upgrade, Saudi Arabia has attracted $18 billion in foreign equity inflows so far this year.

In contrast, renewed trade tensions sparked a sharp decline in portfolio equity flows to other emerging markets.

In contrast to other EMs, Saudi Arabia received more than $4.5 billion in foreign equity inflows in May, and $2 billion in the first three weeks of August, becoming the top equity investment destination among EMs, IIF maintained.