MSCI Inc.’s move to resume coverage of Saudi shares in standalone indexes could pave the way for emerging-market status should the exchange open to foreign investors, Schroder Investment Management Ltd. and Citigroup Inc. said.
“This is a very positive development and a step in the right direction for a potential inclusion into the MSCI Emerging Markets Index, once the market opens up for foreign investments,” Rami Sidani, the Dubai-based head of Middle East and North Africa investments at Schroder Investment Management, whose parent company oversees about $291 billion, said in a telephone interview.
The Capital Market Authority in Saudi Arabia, the world’s top oil exporter and home to the biggest stock market in the Persian Gulf, said in January it will allow overseas companies to list securities on the bourse. The decision helped fuel speculation the kingdom is taking steps to open up its exchange to foreign, non-regional investors, who currently can’t directly invest.
Investors are seeking access to Saudi Arabia as the government of the largest Arab economy pursues more than $500 billion of spending to build real estate, infrastructure and industry. Among companies trading on the Saudi bourse are Saudi Basic Industries Corp., the world’s biggest petrochemicals company, and Kingdom Holding Co., the investment company controlled by billionaire Prince Alwaleed bin Talal.
MSCI, a New York-based index-provider, said yesterday it would reintroduce the MSCI Saudi Arabia Domestic Indices and related regional indexes in June. The index provider said in 2009 it would remove the country’s shares from its Gulf and Arabian equity indexes because of a dispute with the exchange over the licensing of information from the bourse.
Manuel Rensink, MSCI’s head of Middle East and North Africa, didn’t answer two calls to his mobile phone and calls to the company’s office in New York weren’t answered.
Saudi Arabia’s Tadawul All Share Index has returned 18 percent this year, the second-best performer in the Persian Gulf after Dubai and compared with a 12 percent gain in the MSCI Emerging Markets Index. The Saudi measure slipped 0.2 percent to 7,545.28 at the 3:30 p.m. close in Riyadh today.
The country is the latest in the six-nation Gulf Cooperation Council to move closer to gaining the emerging-markets designation at MSCI, which helps exchanges lure investors because fund managers buy their shares to mirror MSCI’s indexes. Qatar and the United Arab Emirates are up for review in June after MSCI in December delayed for a second time in 2011 a decision on whether to upgrade the two nations to emerging-market status.
Israel’s benchmark TA-25 Index has surged 37 percent since MSCI announced the country’s promotion to developed-market status in June 2009.
Six of the GCC’s seven bourses are classified as frontier markets by MSCI, a designation for countries with an average stock-market value of about $30 billion, 94 percent less than in emerging nations, according to data compiled by Bloomberg.
“Almost any way you look at it, Saudi belongs in emerging markets” should foreign ownership restrictions be removed, said Andrew Howell, a London-based strategist for frontier and emerging European markets at Citigroup. “There is no doubt that the market has been anticipating to some degree that Saudi will be opening more.”
Saudi Arabia will only open its stock exchange to foreign investors in a “gradual” process and after concluding there will be no negative impact on trading, the official Saudi Press Agency reported last month, citing the market regulator’s Chairman Abdulrahman al-Tuwaijri.
“Saudi Arabia from an economic and company perspective offers a lot of attractive features, so it’s something we would be recommending to clients to follow closely and look to add exposure when and if it becomes possible,” Howell said.