Saudi Arabia wins MSCI emerging market status

The Saudi Stock Exchange (Tadawul) has won MSCI emerging market status, the global index compiler said in its annual review for 2018.
 

The decision came after Tadawul fulfilled MSCI’s requirements to join EM index, following the reforms carried out by the Saudi regulatory bodies, the statement added.

Tadawul will account for  2.6 percent  weight of the Index. The first inclusion step will coincide with the May 2019 semi‐annual index review. The second step will take place as part of the August 2019 quarterly index review.

“International investors were impressed by the speed of change in the accessibility of the Saudi Arabian equity market and the level of commitment that the Capital Market Authority (CMA) and the Saudi Stock Exchange (Tadawul) have demonstrated,” Sebastien Lieblich, managing director and global head of equity solutions, said in a statement.

“Their expectation now is that the current privatization effort in Saudi Arabia will continue to grow the investable opportunity set available to them and hence, all other things being equal, contribute to an increased weight of Saudi Arabia in the Emerging Markets Index in the future,” he added.

Over the past three years, the CMA and Tadawul have implemented several enhancements that further opened the domestic equity market to international institutional investors.

Following the introduction of a regulation for qualified foreign financial institutions by the CMA in 2015, the means of access to the equity market evolved from indirect holdings using derivative instruments, such as P‐notes and/or SWAPs, to direct holdings. This regulation has since been enhanced twice by the CMA, reflecting feedback from international institutional investors, MSCI said.

Tadawul implemented a complete overhaul of its operating model, including the introduction of T+2 settlement and delivery versus payment, in April 2017.

“This important change was aimed at more closely aligning Tadawul’s operating model with international best practices and further easing access to the Saudi Arabian equity markets for international institutional investors,” it added.

Additionally, the exchange continued its enhancement efforts with the introduction of a new closing price mechanism on May 27, 2018, moving from a value weighted average pricing to a closing auction.

Saudi Arabia will be the fourth Arab market to join MSCI Emerging Market Index after Egypt, Qatar, and the UAE.    

Tadawul in May was included in the FTSE Russell emerging market index and will join starting March next year. S&P Dow Jones Indices (S&P DJI) also said it has started consulting investors for a potential upgrade for Saudi Arabia to emerging market status.