MSCI to announce decision on Saudi Arabia upgrade today

Global index compiler MSCI will announce a decision on the potential upgrade of Saudi Arabia to an emerging market (EM) status today, as part of its 2018 Annual Market Classification Review.

Last June, the Saudi benchmark was added to a watch-list for possible inclusion in MSCI EM index, after the country passed a series of market reforms.

The index provider had earlier said that the Kingdom’s inclusion in MSCI EM Index will be carried out in two phases; the first one during the semiannual review in May 2019, and the second during the quarterly review in August 2019.

The Saudi stock market’s (Tadawul) weight will account for 2.3 percent of the MSCI’s EM Index and is likely to increase upon the planned floatation of Saudi Aramco.

In 2015, MSCI launched the MSCI Saudi Arabia Domestic Index to measure the performance of the large and mid-cap segments of the Saudi market, currently covering 40 constituents.

The MSCI Saudi Arabia Index is designed to measure the performance of the large and mid-cap segments in the Saudi market, comprising 32 constituents.

MSCI estimated 32 major Saudi stocks would gain emerging market status.

Robert Ansari, MSCI executive director and head of the Middle East, said the Saudi equity market is likely to attract cash flows between $30 billion and $40 billion, expecting its weight to stand at 5 percent upon Aramco’s offering.

In March, Saudi Arabia’s stock market was included in the FTSE Russell emerging market index and will join starting March next year, while S&P Dow Jones Indices (S&P DJI) said it began consulting investors for a potential upgrade for Saudi Arabia to emerging market status.

“MSCI has been officially consulting with international institutional investors to gather feedback on their experience of investing in the Saudi equity market so far, which has been largely positive,” said Salah Shamma, Head of Investment, MENA, Franklin Templeton Emerging Markets Equity. “We therefore think it only makes sense that Saudi Arabia be upgraded now. The decision will be extremely supportive of Saudi Arabia’s investment environment, especially in the run up to the Aramco IPO.”