In a major boost to the Saudi Arabian stock market, the Kingdom is to be included in a series of global indexes investors use to guide decisions on where to put billions of dollars' worth of funds.
FTSE Russell, the index compiler owned by the London Stock Exchange, is to launch a series of stand-alone indices for Saudi markets and gave notice that the Kingdom’s markets would be classed as a “secondary emerging market” early next year.
The move is an endorsement by a respected international investment organization of the modernization program undertaken by the Saudi Capital Markets Authority and by the Tadawul, the Riyadh stock exchange.
Last week at the Future Investment Initiative conference in the Saudi capital, both organizations promised further modernization reforms and said they were confident they had the governance and the liquidity to exclusively stage the initial public offering (IPO) of Saudi Aramco, billed as the biggest IPO in history with a potential valuation of $100bn.
A statement from FTSE Russell said that it was to launch a series of “comprehensive Saudi Arabia Inclusion indexes,” including a stand-alone indexes for the country and “global and regional FTSE Saudi Arabia inclusion indexes.”
It also said that the Kingdom was “anticipated to meet the requirements for potential inclusion as a secondary emerging market from 2018.”
Investment indexes are an increasingly important tool for global institutions seeking to invest via exchange traded funds (ETFs) which track recognized markets. Exchanges that meet the FTSE Russell criteria can expect a significant injection of capital and a jump in volumes traded on their markets.
Khalid Al-Hussan, chief executive of the Tadawul, said: “We are firmly committed to the growth and development of the financial markets in Saudi Arabia and have undertaken wide-ranging reforms to enhance market access, transparency, governance and efficiency.
“We are pleased that FTSE Russell has launched this new dedicated Saudi Arabia index series alongside the global and regional Saudi inclusion indexes, which we believe represents further progress in our efforts to create an attractive investment climate for international and domestic investors,” he added.
Mark Makepeace, chief executive of FTSE Russell, said: ““FTSE Russell has strong relationships in the Middle East and we are delighted to launch the new stand-alone country indexes for the Saudi Arabian market. Alongside this, the Saudi Arabia inclusion indexes are a very positive step for the market and country as a whole and we will now begin work with institutional and market practitioners to prepare for the anticipated classification of Saudi Arabia as a secondary emerging market. We look forward to working with Tadawul to further develop the index series and create innovative index products for this market.”
FTSE Russell said that Saudi Arabia had taken a number of positive steps to increase the openness and effectiveness of its markets and, as a result of these reforms, it was anticipated that Saudi Arabia would meet the requirements for inclusion as a Secondary Emerging market from early 2018 following the implementation of further enhancements to the independent custody model.
Last week, Tadawul also announced it would allow foreigners to invest directly in the Nomu, the parallel secondary market on the Riyadh exchange.
Saudi Araba is also awaiting a decision on whether it will be included in the MSCI emerging markets index, possibly as early as next year