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Saudi Arabia's MSCI Boost Is Dragging Emerging-Market Stocks

  • Kingdom’s lower earnings estimates pull EM average down
  • Lower estimates make valuations look pricier, unattractive
Updated on

Saudi Arabian stocks are benefiting from their inclusion in the emerging-market universe. But emerging-market stocks are suffering because of the Saudi presence.

The kingdom’s May 29 addition to MSCI Inc.’s indexes, a decision in the works for over two years, has sent Riyadh stocks into a bull market and brought record fund inflows. But the euphoria masks the fact that the earnings outlook for Saudi companies is deteriorating faster than for peers and can barely justify the country’s record valuations.