On 28 May, MSCI, a provider of equity, fixed-income and hedge fund stock market indices, included Saudi Arabia’s local equities in its MSCI Emerging Markets (MSCI EM) Index for the first time.1.
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a credit positive for Saudi asset managers such as NCB Capital (MQ1) and Jadwa Asset Management (MQ1) and managers involved in cross-border products.
“We expect broad demand will be credit positive for the asset managers because it will allow them to offer new investment products, which will add diversification benefits,” the rating agency said.
It said that asset managers that build strategies around the Saudi market, such as Invesco((P)A2 stable), which launched its first Saudi Arabia exchange-traded fund on the London Stock Exchange in June 2018, will likely increase their assets under management, and international asset owners managing passive investment strategies in the emerging market sector will broaden their investment universe, diversifying assets.
It will increase foreign-investor ownership in the Saudi equity market.
Saudi Arabian equities will be incrementally included in the MSCI EM Index in a two-step process to reach a weight of 2.6% at the end of August 2019 from 1.4% initially.
Inclusion will link the Saudi equity market to the most dominant trend in asset management: the increasing adoption of low-cost passive index funds.
MSCI EM index has funds with assets under management in excess of $1.9 trillion benchmarked to it.
“We estimate that about $30-$40 billion will flow into the Saudi stock market because asset managers and institutional investors following this benchmark will rebalance their portfolios to minimize their tracking error. The inflows will make the Saudi equity market, which currently has a $700 million per-diem average traded volume, deeper and more liquid, placing it among the top 10 stock exchanges in the MSCI EM Index,” Moody’s said.
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