MSCI could rate Saudi Arabia as emerging market if access improves

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 UAE and Qatar, which MSCI continues to rate as “frontier” markets in its global market indexes. Inclusion in the MSCI emerging markets index tends to lead to a big inflow of investment from global stock market funds which track the index.

In its yearly market clarification review, released late Wednesday, MSCI noted that investors from outside the Gulf Cooperation Council, or GCC, region currently have only indirect access to the Saudi equity market. Foreigners can access the Saudi market using swaps “which for institutional investors may cause compliance issues,” MSCI said.

“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 capitalisation of about $360bn, 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.

The MSCI says that the market capitalisation of all the stocks in its emerging market index amounts to $3.2tn.

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 any market opening.