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Abu Dhabi, UAEMonday 22 April 2019

Saudi bourse FTSE upgrade may attract $7bn of inflows

The index provider started on Monday phased inclusion of the Arab world’s biggest stock exchange

Saudi Arabia’s stock exchange, with a market capitalisation exceeding $540bn, has undertaken reforms in order to earn inclusion in FTSE, as well as that of S&P Dow Jones Indices.  Reuters
Saudi Arabia’s stock exchange, with a market capitalisation exceeding $540bn, has undertaken reforms in order to earn inclusion in FTSE, as well as that of S&P Dow Jones Indices.  Reuters

Saudi Arabia's benchmark Tadawul exchange, the biggest in the Arab World, could attract as much as $7 billion in passive foreign inflows following its inclusion in FTSE Russell’s emerging market index, as the bourse also considers rolling out new products, the chief executive of the index compiler said.

Tadawul will have a 2.9 per cent weighting in the FTSE Emerging All Cap Index when all phases are complete by March next year. Passive investors follow indexes unlike active investors who pick stocks.

“We feel this inclusion into our emerging market index is reflective of the developments that have taken place in the local market over time,” said FTSE Russell's Waqas Samad told The National on Monday. “These developments have really been spurred by the desire of the market authorities in Saudi Arabia to open the market to foreign investors as part of the overall trend...to be more in line with global standards.”

Saudi Arabia’s stock exchange, with a market capitalisation exceeding $540bn, undertook reforms to earn inclusion in the FTSE Index, as well as that of S&P Dow Jones Indices, another index compiler. MSCI’s emerging market index, a widely tracked gauge by global investors, is set to start the inclusion process of Saudi Arabia in two phases from May, a move that will buoy foreign inflows every further.

The stock market, the best performing Arabian Gulf market so far this year with around a 10.5 per cent increase, plans to carry out more reforms to help attract foreign investors, who will help improve liquidity and trading in the market, Tadawul said in a statement on Monday.

“The inclusion into these pre-eminent indices is a testament to growing investor confidence in the Saudi market and reflects the successful implementation of far-ranging capital market reforms,” Khalid Al Hussan, the chief executive of Tadawul, said in the statement. “We look forward to welcoming the constituent participants who will invest in these indices, and to building a long term relationship.”

Saudi Arabia, the world’s biggest oil exporter and largest Arab economy, has undertaken a slew of reforms to win its emerging market status.

Last year, the country’s Capital Market Authority made it easier for international investors to buy publicly traded companies by halving the minimum requirement of qualified foreign investors to $500 million from $1bn.

As well as introducing T+2 settlement, which means that securities settle two days after they are bought. The CMA also launched Nomu, a parallel market for small cap companies as well as the adoption of International Financial Reporting Standards for listed companies.

FTSE Russell would like to develop new products, depending on demand from local and foreign investors, Mr Samad said. Such products could include indexes linked to exchange traded funds, real estate investment trusts and index derivatives among other products.

“We are talking to market participants now,” said Mr Samad. “It really is about responding to demand in the market.”

Gary Rynhoud, head of Middle East and Africa at FTSE Russell, said Islamic finance products could also be attractive to investors, including Sharia-compliant products linked to equities and Islamic bonds or sukuk.

“We do think there is demand driven by the domestic market as well as the international market,” he said.

Updated: March 18, 2019 05:52 PM

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