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Moody’s: Saudi Arabia’s Inclusion in MSCI Will Attract Foreign Investors

Moody’s: Saudi Arabia’s Inclusion in MSCI Will Attract Foreign Investors

Wednesday, 12 June, 2019 - 11:15
A Moody's sign on the 7 World Trade Center tower, New York (File Photo: Reuters)
Saudi Arabia’s inclusion in the MSCI Emerging Market Index is expected to increase cash flow in the market bringing in about $30 to $40 billion of investment flows to the kingdom’s equities market and will be credit positive for the asset managers in the country, announced Moody’s credit rating agency.

The MSCI inclusion will facilitate investors’ accessibility to the local stock market.

Moody’s noted that asset managers and institutional investors follow this benchmark will re-balance 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.”

The agency said in its report that it expects more international institutional investor participation in the onshore, largely retail-driven market.

“It will increase foreign-investor ownership in the Saudi equity market, which is around 5 percent of total market capitalization as of April 2019.”

“The inclusion will deepen the liquidity and trading volume of the stocks in the index and likely attract a growing number of foreign investors, a credit positive for Saudi asset managers,” explained the report.

Last year, MSCI decided to upgrade the Saudi market to emerging markets in two-step inclusion: the first on May 29, 2019 and the second during the quarterly review in the coming August.

Saudi Arabia's inclusion to global equity indices has many advantages in terms of economy and financial market including the fair evaluation of stock prices, improved balance of payments, and development of the investment environment and legal frameworks of the financial market, according to a specialized study.

The series of benefits also include increasing transparency and developing investment products whose performance monitoring requires availability of information in the market. This will also enhance the flow of cash in the market given its high attractiveness to both foreign and domestic investors, and the entry of new segments of investors.

The study also pointed out that the benefits include integration with the developed world markets and keeping abreast of developments, in addition to marketing the Kingdom's economy and investment products, and enhancing the role of the institutional investor.

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