Saudi Stock Exchange gets key MSCI upgrade

Saudi Arabia's Stock Exchange Boosted Ahead of Aramco IPO

Among the changes announced this year include rules governing market-making, establishing a company which will ultimately clear all trades on the Saudi bourse, and introducing a new mechanism to set the closing price of shares that is more in line with worldwide standards.

On June 20, MSCI Inc. included Saudi Arabia into their emerging markets index, a step which is definitely beneficial to the Kingdom's stock market Tadawul in the short term.

Political tensions and pressure from the USA dollar scaling to its highest in 11 months pushed emerging market currencies into another sell-off.

MSCI provides almost 100,000 daily indexes of stocks, bonds and other assets worldwide.

Likewise, Darius McDermott, managing director at Chelsea Financial Services, opposed this as he said the MSCI inclusion is "not super exciting news" and the inclusion of Saudi Arabia is likely to be based on the "heavily discussed floatation" of part of Aramco, the country's national oil.

Saudi's inclusion in the emerging markets index could lead to about $45bn of new capital being invested into the kingdom, according to reports.

MSCI's move comes three months after another index provider, FTSE Russell, also gave Saudi Arabia emerging market status.

"It is a recognition of the progress Saudi Arabia has made in implementing its ambitious capital markets transformation agenda".

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Saudi Arabia could see $30-45 billion of portfolio inflows in the next two years if it reaches the same level of foreign ownership in stock markets as the United Arab Emirates and Qatar, according to investment bank EFG Hermes.

"Higher oil prices, continuing evidence of positive economic reform, foreign inflows and insulation from the currency concerns buffeting other emerging markets should all drive the Saudi equity market higher this year", added Mr Malik.

Saudi Arabia may see inflows of as much as US$40 billion in the coming year, Khalid Al Hussan, chief executive officer of the bourse, said in a phone interview.

The Invesco MSCI Saudi Arabia Ucits ETF, will offer investors pure passive exposure to the largest economy in the Middle East. Markets are expecting the country's central bank to raise its benchmark interest rate later in the day to the highest in more than nine years to counter a slump in the peso and match a U.S. Federal Reserve hike.

On assuming office in December 2015, president Mauricio Macri declared Argentina open for business and introduced sweeping pro-market reforms. Accordingly, the share of South Korean stocks can decrease further.

Saudi Arabia is already the biggest stock market in the Arabian Gulf, with a market capitalization of $520 billion, but policymakers have said they want to make it the "dominant" one too, possibly by encouraging cross-listings of other GCC companies in Riyadh and by co-ordinating regulatory regimes across the region.

The inclusion, coupled with the International Monetary Fund deal, is expected to lead to capital inflows into the country, helping to ease pressure over the central bank to stabilize the currency, Jim Barrineau, head of emerging-market debt at Schroders in NY, wrote in a note.

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