Tadawul’s MSCI inclusion could lead to inflows of $4 bln per month

The inclusion of Saudi Stock Exchange on the MSCI Emerging Markets Index could lead to inflows of approximately $4 billion per month, boosting not only the Kingdom's equities but also other markets in the GCC, said Tariq Bin Hendi, acting Chief Investment Officer at Emirates NBD.

"If it does happen, you are looking at Saudi taking a potentially 2.5 percent to 3 percent weightage on (MSCI EM) index, which will translate to approximately $4 billion flowing into (Saudi) market per month," Bin Hendi said on Monday at a press conference to launch the bank's 2018 investment outlook.

"Even the trickle effect of that on the GCC countries will be tremendous," he added.

If the index compiler decides to move forward with Tadawul's inclusion, the impact on the markets would show soon after the announcement, without a hold-back until the actual inclusion, Bin Hendi said.

"And it hasn’t been priced-in (by the markets), which is very interesting," he added.

In a recent report, MSCI said Tadawul would account for 2.3 percent weight of the MSCI’s Emerging Market Index, if included as expected by late 2018.

The Saudi benchmark was added to a watch-list last June for possible inclusion in the index, after the country passed a series of market reforms, including easing foreign ownership requirements, reducing settlement cycles and introducing short-selling.

According to Emirates NBD, another positive catalyst for the region's equity markets in 2018 will be Saudi Aramco's initial public offering (IPO).

Saudi Arabia's state-owned oil firm is preparing for a 5 percent IPO, with shares to be listed on Tadawul and at least one other international exchange.

While Saudi government has held that the IPO plans are on track for this year, Bin Hendi said oil price movement will also be key to when the shares listing is announced.

"If oil stays very low, or moves in a downward trajectory, it may delay the Aramco IPO," he said.

Emirates NBD holds a positive outlook on GCC equities, especially UAE, while suggesting a "hold and wait" approach.

Meanwhile, the bank forecast Brent oil futures to average $56 per barrel in 2018, noting the oil markets will have some challenging fundamentals to overcome this year.

It, however, added that oil prices should settle on a higher and more sustainable level than 2017.

Write to Nadeshda Zareen at nadeshda.zareen@argaamplus.com