MSCI included the first phase of Saudi Arabian shares in its Emerging Markets Index on 28 May 2019, giving the Kingdom a presence in all the major emerging markets (EM) indices. Having already embarked on the inclusion process with FTSE Russell and S&P Dow Jones earlier this year, Saudi Arabia is becoming increasingly prominent in index-tracking funds, which manage trillions of dollars of capital.
“Saudi Arabia’s inclusion in the MSCI and FTSE Russell emerging markets indices will not only draw in around USD17 billion from index-tracking funds, but it will also create new opportunities for actively managed funds, further deepening the Kingdom’s equity market. There is a lot of international investor interest in Saudi Arabia – on the passive and on the active side – and we see a significant room for growth given the relatively low level of foreign ownership at the moment,” said Antoine Maurel, Head of Global Markets, Middle East, North Africa and Turkey, HSBC.
The first phase of Saudi Arabia’s inclusion in the MSCI Emerging Markets Index saw 30 securities added to the closely followed benchmark, with an aggregate weight of 1.42 per cent. The second and final inclusion phase will take place in August 2019, which is expected to see Saudi’s presence in the index double to around 2.8 per cent.
HSBC expects approximately USD12.5 billion to flow into Saudi Arabia from funds that track the MSCI Emerging Markets Index over the course of the two phases. This is in addition to the USD4.5 billion of Saudi inflow expected from funds that track the FTSE Emerging Index.
HSBC Saudi Arabia is the largest international investment bank with both custody and brokerage licenses in The Kingdom. The bank has worked closely with hundreds of fund managers and major financial intermediaries around the world to prepare them for this major liquidity event by helping them register as a Qualified Foreign Investor (QFI) in Saudi Arabia.
“International investors have responded very well to the pace of regulatory reform in Saudi Arabia. Our leading custody platform in Saudi combined with HSBC’s global network means we are well placed to help international investors access this exciting and growing market,” said Madhur Bhandari, Head of Securities Services, HSBC Saudi Arabia.
Osman Raie, Senior Advisor – Saudi Equities, HSBC, added, “In the run up to MSCI inclusion, we saw around USD4 billion of inflows from foreign investors, suggesting an onset of some MSCI pre-positioning by actively managed funds on top of the passive FTSE flows.”
Saudi Arabia’s index inclusion journey started in 2015 with the introduction of the Qualified Financial Investor (QFI) Scheme, which provided a mechanism for foreign investors to directly access the Saudi Stock Market, known as Tadawul, for the first time. Through its brokerage and custody units, HSBC was the first entity to execute and settle foreign investor trades. Since then, a raft of reforms have been introduced, which have transformed the market’s infrastructure and created a platform capable of accommodating the world’s largest companies.