Saudi Arabia: Khashoggi Killing Can't Stop Foreign Investment - Bloomberg:
Four years after Saudi Arabia first let foreigners into its stock market, many overseas investors will soon have little choice. That’s because MSCI Inc., the U.S.-based index compiler, is about to classify the kingdom as an emerging market, meaning some global funds will have to adjust portfolios to include Saudi equities. The biggest market in the Arab world comes with caveats, including lofty valuations, a sputtering economy, the presence of influential funds with ties to the government and a heavy dose of geopolitical risk. It’s also got a potential jewel.
1. What is happening and when?
MSCI will add the kingdom to the MSCI Emerging Markets Index in two steps. It will identify the first batch of Saudi stocks on May 13 and the second batch on Aug. 8. That’s a huge deal since about $1.8 trillion in assets were benchmarked to the MSCI Emerging Markets Index as of June 2018. Arqaam Capital estimates the first phase alone could result in inflows from passive investment funds of about $7.1 billion, with Saudi Arabia representing 1.46% of the emerging-market benchmark. Mohamad Al Hajj, an equities strategist at EFG-Hermes, foresees about $12 billion of inflows plus another $5 billion from Saudi Arabia’s inclusion in British compiler FTSE Russell’s equivalent index, which was announced in March 2018.
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