• «Financial Times»: a historic year for Saudi stocks. 3 global indices compete to include «Tadawul»



    *Steve Johnson and Simone Care from Dubai


    We are in the midst of a historic year for the Saudi stock market, as three of the largest providers of indicators in the world plan to inject billions of dollars into the Saudi stock market, which is following the inclusion of the Saudi stock market index in reference indices that have increased their impact, as well as the rise in negative investment over the past decade.

    This process, which began this week when both "FTSE Russell" and "S & P Dow Jones" added Saudi stocks to their indices, which raises questions about what investors will buy.

    The move also underscores the great role that indicator makers are playing now in channeling capital to Gulf countries.

    A Dubai-based banker said on the listing of shares in the Saudi market as part of global indices: "These financial transactions may reflect deep conviction."

    When the rival Morgan Stanley Capital International Index finished adding the Saudi stock index in September, the Saudi market will be valued at $ 536 billion, which is known as "Tadawul", the Middle East's eighth-largest stock market, with a weighted average of 2.7 per cent.

     The index is tracked by investment funds estimated at $ 1.9 trillion.

    Traded ETFs that were created to track these indicators will highlight the weight of the Saudi stock market.


    Khaled Al-Hassan, CEO of Tadawul, said that about $ 500 million had entered the market recently, as they were all of the ETFs.

    The first phase of projected inflows of $ 5 billion.

    Foreign investment companies now have 5.1 per cent of the market, up from 4.2 per cent at the end of 2017.


    Mazen Al-Sudairy, head of research at Al Rajhi Capital, said that this means "a lot of room" for more money to flow, as regional markets like Dubai now have a foreign ownership of 9 per cent.

    According to an analysis of 180 funds from stock funds, which is valued at $ 350 billion by Cobli Fund Research, are emerging market equity funds that are only 0.08 per cent now.


    Oliver Bell, who manages both the Middle East and Africa funds and the border funds of T Rowe Price Asset Management, said that fund managers "will have to look at the Saudi market because of the weight they will gain in emerging markets, which could become a 3 percent weight in the benchmark in a short time."


    Analysts say that the wealth of the Tadawul market depends, like other markets in the Gulf neighborhood, on oil price levels, which rose 26 per cent this year after falling in the last quarter of 2018.

    The biggest sector in the Saudi stock market is the financial sector, which depends on the health of the Saudi economy, followed by the material sector - largely petrochemicals and then fertilizers.

    Tadawul has jumped 12 per cent in the past 12 months, which is outpacing the FTSE all-time low of 1.7 per cent over the same period.

    This has helped to raise the Saudi market's rating to 15.1 times that of future earnings, compared to an average of 12 times across the Middle East, according to Renaissance Capital.

    The willingness of funds to support the market has helped to increase the valuation of Saudi stocks.


    Local authorities now have 40.7 per cent of listed securities, up two basis points from last year.

    This intervention is a reminder to investors - passive and active - of the country's economy and capital markets.

    Index providers, who decided to include stocks, pointed to the reforms of the country's capital markets, which were necessary prior to listing.


    Ftse Russell said the inclusion of Saudi shares this week represents, "A culmination of Riyadh's efforts to meet the strict requirements of listing."

    While investment in emerging markets involves different risks, some observers now argue that the rise of negative investment has allowed fund managers to deliver these morally difficult decisions to a handful of index providers.


    J. B. Smith, a partner at Xstrata Investment Consulting that focuses on policy, governance and markets, said, "There is consensus on how to include low corporate governance countries, significant risk appetite in indices, and the GCC market in general, is already appropriate for this model. However, hot capital is now in a state of submission to the attractiveness of strong index providers."​

© All Rights Reserved for Asharqia Chamber