MSCI Could Rate Saudi As Emerging Market If Access Improves

Zawya Dow Jones –Index compiler MSCI Inc. said it could rank Saudi Arabia as an emerging market alongside countries such as Brazil and China, if the oil-rich kingdom moves ahead with longstanding plans to open up its stock market to foreign investors.

That could vault Saudi Arabia above smaller regional markets such as the United Arab Emirates and Qatar, which MSCI continues to rate as “frontier” markets in its global market indexes.

In its yearly market clarification review, released late Wednesday, MSCI noted that investors from outside the Gulf Cooperation Council, or GCC, region currently have indirect access to the Saudi equity market through the use of swaps which for institutional investors may cause compliance issues.

“The introduction of a new scheme allowing direct access for non GCC based investors to the Saudi equity market may result in MSCI considering the inclusion of Saudi Arabia in Frontier Markets or Emerging Markets, depending on the level of market accessibility,” MSCI said in a statement on its website.

With a market capitalization of about $360 billion, Saudi Arabia accounts for almost half of the Gulf region’s total value for listed companies, according to Zawya.com data. The benchmark Tadawul Index has added almost 7% in value this year.

There has been speculation that a decision could be taken to open the Saudi market to foreign investment this year, though a Saudi official familiar with the discussions between the government and industry officials told Zaya Dow Jones in February that “nothing is set” on the timing of the market opening.

According to draft proposals circulated earlier this year by the Saudi Capital Market Authority, the kingdom is likely to take the “qualified foreign investor” approach, similar to the route taken by China in opening up its stock markets. Only funds with assets of at least $5 billion under management will be allowed to buy Saudi shares, according to the CMA proposals. An individual foreign investor won’t be able to hold more than 5% of an individual Saudi company’s shares, the proposals say, while the total foreign shareholding, including swaps and exchange traded funds, won’t be allowed to exceed 49%.

MSCI didn’t comment on the detailed Saudi proposals in its review. The index compiler polls international institutional investors who tend to place a strong emphasis on equal treatment of investors, free flow of capital, cost of investment and country specific risk.