RIYADH (Reuters) – MSCI’s proceed to add Saudi Arabia towards the benchmark emerging markets index will help attract $40 billion from foreign funds and increase the advantage of oil giant Saudi Aramco’s proposed initial public offering, a Saudi official said on Thursday.
Inflows are anticipated from both passive and active funds, Mohammed bin Abdullah Elkuwaiz, chairman from the Saudi Capital Market Authority (CMA), told Reuters in an interview, adding that around $10 billion achievable from passive funds.
Investment inflows may be bolstered further via the report on state-owned Saudi Aramco, and that is most likely to function as a world’s largest public company.
Kuwaiz said Saudi Arabia’s inclusion in benchmark indexes plus the prospective Aramco IPO are mutually reinforcing, with one strengthening the fact for your other.
“From a place liquidity standpoint, connecting the Saudi sell to the other world and having the free movement of capital from global investors towards Saudi market only helps a list of the scale and scale of Saudi Aramco,” he said.
He added the Saudi bourse operator and also the CMA were “fully ready for that Aramco IPO”, which Saudi officials have said could raise $100 billion.
The timing on the Aramco listing remains uncertain. Saudi Arabian Energy Minister Khalid al-Falih said on Thursday it becomes “nice” to observe Saudi Aramco floated this year, but added the fact that timing has not been critical for the Saudi government.
The Saudi bourse, or Tadawul, includes a total market capitalization close to $520 billion, which includes a free float up to Forty percent, which Kuwaiz called a “safe level with regards to leaving sufficient liquidity at the disposal of public investors to allow for appropriate price discovery”.
Increasing the disposable float — and in all likelihood the share of foreign ownership — is in the hands of institutional shareholders, who is going to decide after it is appropriate to dispose of, he stated.
MSCI’s move comes 11 weeks after another index provider, FTSE Russell, also gave Saudi Arabia emerging market status. The Saudi index has increased nearly 14 % this year, the top performing index while in the Gulf region.
Mazen al Sudairi, head of research at Al Rajhi Capital, said the index inclusions would encourage more companies to read about the region’s largest stock trading game. More investment by institutions and declining retail ownership of shares would meanwhile increase the free float, he added.
Khalid al-Hussan, CEO of Tadawul, told a news conference in Riyadh that MSCI’s move had created market opportunity to absorb liquidity and are the main thing in feeding new IPOs.
He said passive investors tracking the MSCI index will still only obtain access to the Saudi market buy, although active investors can participate in IPOs now.
The MSCI Saudi Arabia Index have a weighting of roughly 2.6 % inside emerging markets index, with 32 securities, following a two-step inclusion process in May and August pick up.
Abhishek Kumar, sector head of emerging markets debt, fixed income beta at SSGA, said the “developments in equity world (are) apt to be monitored via the fixed income index providers”.
JP Morgan will likely announce the outcomes of the article on its Emerging Market indexes later this month, he added. Inclusion in benchmark bond indexes would similarly broaden the actual possibility pool of investors in Saudi debt.