DUBAI--Saudi Arabia, the Middle East's biggest economy, is
likely to be classified as an emerging market following the opening
of its $590 billion stock market to foreign investors in June,
according to index compiler MSCI Inc.
One of the last major markets globally to restrict foreign
investments, Saudi Arabia this week issued rules that will govern
international investors seeking direct exposure to some of the
fastest-growing companies in the region.
Investors globally have shown strong interest in investing in
the kingdom's listed entities, pushing compilers such as MSCI to
include Saudi Arabia in their indices, which are tracked by funds
managing billions of dollars.
"There is a lot of demand for MSCI to launch a Saudi index as
soon as the market opens up to direct foreign investments,"
Sebastien Lieblich, the Geneva-based executive director of index
research at MSCI, told The Wall Street Journal on Thursday.
And given its size, Mr. Lieblich said, Saudi Arabia will "most
probably be classified as an emerging market" post review.
There were some uncertainty in the market about Saudi Arabia's
classification as a frontier or emerging market once it qualifies
to be elevated, given that both the benchmarks are followed by
funds with different mandates.
"The Saudi equity market is also too developed, relative to
other such markets, to not be included in the EM basket," Mr.
Lieblich said.
But the earliest that Saudi Arabia, as per the regular process,
could enter the emerging-market basket would be mid-2017, he
added.
The Saudi market's planned opening on June 15 is too close to
make it into our June review list, MSCI noted. Its inclusion will
depend on the feedback we get from the investor community. "If
there is demand, we could include it in the review list later in
the year," Mr. Lieblich said.
For now, MSCI plans to launch a Saudi index around the time of
the market's opening, he added.
"Investors will likely want some experience in the Saudi market
before making such demands [for EM inclusion]," Mr. Lieblich
said.
And based on current data, Saudi Arabia's weight in the
emerging-market basket would be about 2%, MSCI said.
Saudi Arabia last year said that it would allow direct foreign
investments in its listed companies to promote institutional
investments in a market largely dominated by local individual
investors, a move that would help reduce the high volatility there
and improve the corporate-governance practices of traded
companies.
The market's opening to large institutional investors will also
likely bring in hundreds of millions of foreign cash, boosting the
Saudi economy as it copes with the impact of low oil prices, its
main source of revenue.
Write to Nikhil Lohade at Nikhil.Lohade@wsj.com
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