MSCI Boost Turns Saudi Stocks Into Emerging-Market Millstone - Bloomberg:
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.
This blind-alley racing has crashed the case for emerging-market stocks as a whole. With the addition of Saudi companies’ poorer estimates, the average profit forecast for the MSCI equity benchmark plummeted on May 29. While that looks ugly on its own, it also makes the gauge’s valuation pricier given that the projections are the denominator in the price-estimated earnings ratio.
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