FTSE Russell denies Saudi entry to list

Kingdom to soon meet criteria for unclassified status to a secondary emerging market

Index provider FTSE Russell refrained from adding Saudi Arabia to its index of emerging market countries amid its September country classification annual review. Neighbour Kuwait was added to the list.

FTSE Russell said Saudi Arabia will soon meet criteria to be promoted from unclassified status to a secondary emerging market, according to a statement on Friday. Saudi Arabia will be assessed again in March, it said.

Capital markets regulators and the stock exchanges in both countries have introduced infrastructure reforms in attempts to attract local and international investors. In Saudi Arabia, the improvements are part of a broad programme to diversify the country’s economy away from oil, its main export, and ahead of the sale of shares in state-controlled oil company Saudi Arabian Oil Co.

The sale is being tipped as the biggest initial public offering in history. Achieving emerging market status could trigger a surge in passive inflows from funds tracking the Tadawul benchmark around the world.

“Saudi Arabia has made significant strides to enable its capital markets to open up to international institutional investors, which is a clear testament of the relentless efforts of the Saudi Government,” Georges Elhedery, Deputy Chairman and CEO of HSBC Middle East, North Africa and Turkey said in an email.

“Foreign investor sentiment continues to be positive.”

Inclusion of Saudi Arabia could lead to $4.4 billion (Dh16 billion) in flows to the country’s equities market, assuming it would represent 2.7 per cent of the index, according to Mohamad Al Hajj, an equities strategist at the research arm of EFG-Hermes Holding in Dubai.

Considering Saudi Aramco’s IPO, the country’s weight in the index could reach up to about 5 per cent over time, said Bassel Khatoun, chief investment officer of Middle East North Africa equities at Franklin Templeton Investments in Dubai.