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Saudi Arabia is linked to emerging market indices, providing access to billions of dollars



Saudi shares joined the FTSE Russell Emerging Markets Index on Monday and began a process announced last year. The Kingdom's stock market was also added to several emerging markets and global benchmarks run by S&P Dow Jones.
In May, Saudi Arabia will join even more coveted MSCI Emerging Markets Index ( EEM ) .

Inclusions in emerging markets emerging markets will clear investors' path to plow more money into Saudi Arabia. Passive money, mainly in the form of ETFs, is particularly sensitive to these classification changes.

"It provides an approval set that means a lot to institutional clients," said Erik Zipf, head of emerging markets in DuPont Capital, a property manager owned by DowDuPont ( DWDP ) ] which controls $ 27 billion.

The access of Saudi shares to global references will take place in phases over the next year or two.

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"Inclusion in these prominent indices is evidence of increasing investor confidence in the Saudi market and reflects successful implementation of comprehensive capital market reforms, said Khalid Al Hussan, CEO of Tadawul, the Saudi stock exchange, in a statement.

Saudi Arabia's upgrading to emerging market status comes despite strong criticism of the realm following the death in October 2018 and dismemberment by Jamal Khashoggi, The Washington Post Columnist Critical to the Saudi Government, CIA concluded that Saudi Crown Prince Mohammed bin Salman personally ordered Khashoggia's murder

FTSE Russell refused to comment on whether it was reconsidered, including Saudi Arabia following the Khashoggi assassination. S & P did not respond to a request for comment.

Saudi shares took a hit during worship the killing of the Khashoggi murder. The iShares MSCI Saudi Arabia ETF ( KSA ) fell sharply in the fall, but has since arisen. ETF is up 12% so far this year.

DuPont Capital's Zipf said the Khashoggi controversy has made Saudi Arabia a more difficult place to invest in.

"That increased the political risk," he said.

Steps to modernize Saudi Arabia

Index providers such as S & P and MSCI usually choose to include countries in emerging market criteria as a result of capital market reforms.

"It's the primary driver. It's a separate problem from ethical or other emotions," Zipf said.

Saudi Arabia has attempted to diversify its oil-dependent economy through a bold reform program known as Vision2030. The plan aims to reduce Saudi Arabia's unemployment and build the country's industrial, tourism and entertainment industry.
Vision2030 has also included social reforms, including ending the kingdom's controversial women's ban on driving. This step was partly aimed at encouraging more women to enter Saudi Arabia's workforce.

"On the whole, they are trying to take steps to modernize the economy," said Dan Petruzzi, senior employee of DuPont.


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