Thursday 21, June 2018 by William Mullally

Moody's: Saudi's MSCI Emerging Markets inclusion will attract foreign investment

For investors, however, the time to jump into an underpriced Saudi Arabia market may have already passed, as the move was anticipated months ago.  

MSCI's announcement that it would be including Saudi stocks in the Emerging Markets Index beginning in 2019 was welcomed by experts throughout the world, including ratings agencies such as Moody's. 

“The inclusion of Saudi stocks in the MSCI Emerging Markets Index will facilitate investors’ accessibility to the local stock market and will attract foreign investments into Saudi Arabia. International asset owners managing passive investment strategies in the emerging market space will see their investment universe broadened. USD 1.9 trillion in assets are currently benchmarked to the MSCI Emerging Markets Index suite," said Vanessa Robert, a Vice President and Senior Credit Officer at Moody’s Investors Service.

For investors, the time to jump into an underpriced Saudi Arabia market may have already passed, as the move was anticipated months ago.  

“The accession to the EM index for both Saudi Arabia and Argentina are not surprising but you never know with MSCI because the process is not entirely formulaic. IT is Saudi Arabia which is much more virgin territory for most EM fund managers given the existing easy accessibility of Argentina, where almost all of the large stocks have ADRs.Saudi Arabia is no longer as cheap as it was a few months ago. The oil price rise and expectations of this MSCI decision have driven a re-rating of the market price-to-book multiple, climbing back to the average for the last five years. While we have seen hangovers for trading volumes for several months following EM upgrade decisions in the cases of the UAE, Qatar and Pakistan, things look very different in the case of Saudi Arabia: its index weight is not trivial at over 2.5 per cent, so the portfolio allocation decision for an EM fund manager is much more critical than in those other, much smaller, markets," said Hasnain Malik, Global Head of Equity Research at Exotix Capital.

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