Investors flock to the Middle East with index upgrades

13 November 2019

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The inclusion of a number of stock markets in Emerging Market Indices are encouraging foreign investors to park their money in the region.

Governments across the Gulf Cooperation Council (GCC) in particular are working to develop the framework and infrastructure of its financial markets to help attract foreign institutional investors.

In a landmark move for the region, Morgan Stanley Capital International (MSCI) Index upgraded Saudi Arabia to Emerging Market status, joining the UAE, Qatar and Egypt.

Source: Refinitiv, Maramore Research

The number of Qualified Foreign Investors (QFIs) on the Tadawul has grown by 200 per cent year to date, reaching more than 1,300. The inclusion in Financial Times Stock Exchange (FTSE) Emerging Market Index– another major index provider – should boost inflows by around USD3 billion, says Sarah al-Suhaimi, chairman of Tadawul.1

“Since the beginning of this year, foreign investors have traded more than USD65 billion and have been net buyers of more than USD20 billion of Tadawul-listed shares through August 29,” al-Suhaimi told Reuters.1

Antoine Maurel, Head of Global Markets, HSBC MENAT told Reuters2 that international investors have already committed around USD18 billion to Saudi equities so far this year, primarily from MSCI and FTSE trackers as well as Saudi dedicated ETFs.

Saudi Arabia attracted more than USD4.5 billion in foreign equity inflows in May and USD2 billion in the first three weeks of August, according to the latest available data from the Institute of International Finance.3

MSCI will also look to include Kuwait Stock Exchange in the Emerging Market Index in 2020. Assets worth approximately USD1.8 trillion track the MSCI EM index, which suggests that Kuwait would bring about sizeable passive fund inflows in addition to active inflows.

“Considering the pro-forma weightage of 0.5 per cent, we estimate a fund flow of between USD3.6 and 9 billion (KWD 1.1 and 2.7 billion) from passive investors into the country,” according to Marmore MENA.4 The Head of Kuwait’s Stock Exchange expect passive inflows of around USD 2.8 billion due to the MSCI EM upgrade.

Source: Refinitiv, Maramore Research

The GCC markets are looking to transform capital markets into viable vehicles that can help investors capitalise on the growing opportunities arising from the region’s diversification drive.

The rise of unicorns (unlisted USD1 billion start-ups) such as Careem and Noon, also suggests that regional capital markets must raise their game to emerge as viable vehicles for entrepreneurs to offload their companies.

HSBC has been at the forefront of capital market developments in Saudi Arabia and Kuwait, and has taken companies and stock markets from both countries on roadshows to take their growth story to its international client base.

“We have been working very closely with their stock markets, regulators and listed companies for a number of years to help them meet the necessary criteria to be included in the indexes,” HSBC said.


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