- A broker monitors stock prices on a screen at the Saudi Investment Bank in Riyadh. Saudi Arabia plans to open its stock market, the Arab world’s biggest, to direct investment by foreign financial institutions in the first half of next year.
- Reuters
With a market capitalisation of more than half a trillion dollars, Saudi Arabia’s plan to allow foreigners direct access to its listed companies early next year has sparked strong international interest from investors.
After all, it’s the biggest economy in the region – with plans to spend hundreds of billions of dollars in the coming years to diversify away from its dependence on oil revenue. Investors would be hard pressed to come up with reasons not to partake in the potential growth it offers. Especially if the country is added by MSCI Inc. to its indexes, which are tracked by streams of global cash seeking returns.
Sebastien Lieblich, the Geneva-based executive director of index research at MSCI, tells The Wall Street Journal that the potential opening up of the market could lead to the creation of a Saudi Arabia index, and its potential inclusion in a major composite benchmark such as the emerging markets index. Here are some key excerpts.
WSJ: Will MSCI include Saudi in its review list for emerging or frontier markets?
Mr. Lieblich: “Were the equity market to open up, it may be included in the index it fits better in terms of equity market size/liquidity and equity market accessibility, i.e., emerging market or frontier market. There is no rule in the methodology that forces a market to enter first frontier market before being eligible for emerging market.”
WSJ: By when does MSCI see Saudi being included in its frontier or emerging indexes? What percentage of the index will it account for?
Mr. Lieblich: “As per the regular process, the earliest Saudi Arabia could enter either frontier market or emerging market would be mid-2017.”
“The weight of Saudi Arabia in emerging market and frontier market [based on current data] would be of approximately 4% and 63%, respectively. MSCI does not calculate or estimate fund flows.”
WSJ: What are the most important steps that Saudi needs to take for its inclusion in the emerging market index?
Mr. Lieblich: “In order to be included in emerging market, Saudi Arabia would need to exhibit emerging market standards in terms of its broad equity market accessibility.”
WSJ: The speculation is that Saudi Arabia may follow the China or India model in terms of allowing qualified foreign institutional investors to invest within preset limits. Will the China or India model for foreign participation work for Saudi?
Mr. Lieblich: “Both models have their challenges based on international investor feedback.”
WSJ: Saudi Arabia plans to invite suggestions from various stakeholders including investors. Will MSCI give its inputs to the market regulator there?
Mr. Lieblich: “MSCI has already been in touch with the Capital Market Authority in the past as part of the regular process of market review. If the CMA reaches out to MSCI to get inputs/clarifications on the methodology, MSCI will be happy to answer questions. As a matter of policy MSCI is not allowed to give advice to any market participants.”
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(via WSJ Blogs)
