MSCI upgrade may grow Saudi Arabia inflows
Saudi Arabia’s financial sector is hoping billions of dollars of foreign portfolio funds will start flowing into the country, but the money may do little to boost a stock market depressed by low oil prices and rising taxes.
On June 20, global equity index compiler MSCI will announce whether it is putting Saudi Arabia on a list for possible upgrade to emerging market status. Index firm FTSE will decide in September whether to make Riyadh a secondary emerging market.
Then in late 2018, authorities aim to list oil giant Saudi Aramco in Riyadh, selling about 5% in what is likely to be the world’s biggest initial public offering of shares. All three events promise to draw large flows of passive funds — money that benchmarks itself against international indices — to Saudi Arabia and by raising the kingdom’s profile among global investors, attract a volume of active funds that could be even larger over the next couple of years.
“Saudi Arabia will become tied to significant global capital flows. The market could be larger than Turkey and Thailand, possibly larger than Mexico,” said Asha Mehta, portfolio manager at US based-Acadian Asset Management, which manages $77bn of assets globally.
“The process is gradual, but the boost to liquidity and market capitalisation in Saudi will make some institutions which have been hesitating decide to enter,” FIM Partners senior analyst Sandeep Srinivasat said.
But there are signs the inflow of foreign money may be slower than some investors are hoping, and that it may not trigger a strong rise in the Saudi market.
Low oil prices are keeping buyers wary, while austerity steps planned by the government, as it confronts a huge budget deficit, will dampen corporate profits. Local regulations mean there may be little room left for foreigners to raise their stakes in some firms.