Saudi Arabia, home to the biggest bourse in the Arabian Gulf, was denied entry into FTSE Russell Emerging Markets Index, the benchmark tracked by funds with billions of dollars under management. Kuwait, however, has made the cut and was included in the gauge after the country classification annual review.
There was a strong case for both Kuwait and Saudi Arabia to get promoted, and some market observers were hoping that both GCC nations will get the classification. In the end, it only happened for one.
“Congratulations” to Kuwait, the index provider said, and also commended the efforts of Saudi authorities in laying down the policy framework necessary for its future inclusion in the benchmark index Structural market reforms, such as efforts to liberalize foreign ownership and changes in settlement procedures, are pushing Saudi Arabia closer to its goal of achieving the coveted emerging market status. FTSE Russell said the largest Arab economy is expected to meet the requirements for inclusion early next year, when further enhancements to the stock market’s independent custody model will be introduced.
“We will now begin work with institutional investors and market practitioners to prepare for the promotion of the Saudi Arabian market,” said Mark Makepeace, the chief executive of FTSE Russell, who expects to finalise these arrangements and announce the implementation schedule in March next year.
But until the kingdom gets the much sought-after promotion, FTSE Russell will launch stand-alone Saudi Arabia country indices for local and international investors who seek early index-based exposure to the country’s equity market. The change in the status can trigger a surge in the flow of passive funds in the kingdom and will make it the fourth GCC country classified as emerging market. The UAE and Qatar are already listed on the FTSE’s index.
Saudi Arabia’s probable inclusion next year could mean an inflow of about US$4.4 billion to the stock exchange, Mohamad Al Hajj, an equities strategist at the research arm of EFG-Hermes told Bloomberg. The kingdom might not quite have made it this time, but emerging market status, and the resultant inflows, are surely not too far away.