The global index compiler MSCI’s upcoming decision on allowing Saudi Arabia to join its Emerging Market Index is widely expected to be positive, with analysts estimating Saudi Stock Exchange (Tadawul) to witness inflows of $40 billion as a result.
The MSCI will announce its decision on June 20.
In February, the index complier said that if included, Saudi stocks will account for a potential 2.3 percent weighting in its Emerging Market Index and the Kingdom’s weightage will increase following the initial public offering of Saudi Aramco.
The reclassification of Saudi stocks is expected to happen in two stages, coinciding with semi‐annual and quarterly index reviews in May and August 2019.
Saudi Arabia will have 32 constituents under emerging markets classification with a free-float adjusted market capitalization of $124.1 billion.
The MSCI Saudi Arabia Small Cap Index would have 42 constituents under Emerging Markets, and a free float‐adjusted market capitalization of $16.7 billion.
The index complier added Saudi stocks to a watch-list in June last year, after the Kingdom passed a series of market reforms.
Here is a look at the changes that Tadawul has implemented since September 2016:
|
|
Previous situation |
Current situation |
Implementation date of the changes |
|
Foreign Ownership Limits |
20% limit applicable to QFIs |
49% limit for all foreign investors (including QFIs) |
Sep. 2016 (QFI rules version 2) |
|
QFI registration rules |
- Reduction in the minimum AuM for QFIs from $5 bln to $500 mln - New eligible QFIs (e.g. sovereign wealth funds and university endowments) - Improvements in registration process and process for applying for QFI license |
Sep. 2016 / Jan. 2018 (QFI rules versions 2 and 3)* |
|
|
Clearing and settlement |
- T+0 settlement cycle - No DVP model - Cash pre-funding |
- T+2 settlement cycle - DVP model with fail trade management - No cash pre-funding |
Apr. 2017 (Tadawul's new operating model) |
|
- Omnibus facilities not available |
- Omnibus-like facilities available |
Jan. 2018 (amended Market Conduct Regulations) |
|
|
Securities lending / Short selling |
Not allowed |
Allowed |
Apr. 2017 (Tadawul's new operating model) |
|
|
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* The 3rd version of the QFI rules (Jan 2018) includes a significant reduction in the number of qualification requirements and a significant improvement in the registration process and the process for applying for a QFI license.
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