Saudi Arabia added to watchlist for emerging market status by MSCI

The index compiler MSCI said late on Tuesday that it has added Saudi Arabia to its watchlist for possible addition to its emerging market measure of stocks after the Kingdom fulfilled a number of pending requirements including bringing settlement in line with leading international stock exchanges.

The decision by MSCI - which has been widely expected - doesn't however mean that Saudi Arabian stocks will immediately join the MSCI Emerging Market stock index, a gauge that tracks more than 800 stocks in 23 developing nations, and its likely to take up to two more years before Riyadh-listed equities officially join the index as is typically the process with any upgrade.

Regional investors told The National that they expect that investors who track indexes, typically known as passive investors because they don't pick stocks, will buy between US$10 billion to $12bn of Saudi equities as a result of the upgrade while investors that pick stocks, called active investors, will invest a further $30bn to $35bn.

The upgrade is expected to be announced in mid-2018 while implementation will follow in mid-2019. Equities in the Kingdom are expected to rally ahead of the formal inclusion if history is anything to go by. The move is also expected to give a boost to stocks region wide.

"Typically what happens is the market has the maximum rally between the date of announcement and the date of inclusion," said Sachin Mohindra, a portfolio manager at Invest AD, an Abu Dhabi-based asset manager.

"We saw that in Qatar, we saw that in UAE and other markets in Argentina. So between now and then we could see a lot of interest building up for the region as a whole because the region then comes on the radar as a whole for managers all over the world."

The Tadawul, as the Saudi stock exchange is known, is the Arabian Gulf’s largest equity market with a market capitalisation exceeding 1.6 trillion Saudi riyals. Foreigners owned about 4.3 per cent of the market by the end of June 15, according to the exchange. Saudi Arabia, which allowed foreigners direct access to stocks in June 2015, last year further eased rules for them in a bid to attract more capital flows.

The Capital Market Authority, the Tadawul’s regulator, has also taken steps to increase its chances of inclusion in MSCI Emerging Market index as well as FTSE's EM index.

This year, the regulator changed the settlement cycle for listed shares to within two working days, also known as T+two, from T+0, a reform that is expected to help it join MSCI emerging market index.

Saudi Arabia’s weighting in the MSCI index is expected to range between 2.5 and 3 per cent, a level that would be the highest for a Mena country. Brazil, for example, has a 6.85 per cent weighting in the index, according to MSCI data from May.

Ahead of last night's announcement, over the past week, Saudi Arabian shares have rallied. The Saudi index jumped 2.4 per cent on Monday after Mohammed El-Kuwaiz, vice chairman of the Capital Market Authority, was quoted as saying by the Asharq al-Awsat newspaper that he expected Riyadh to be upgraded to emerging market status by the end of 2018. That would be a departure from the norm when it comes to MSCI index reclassifications.

"Could they accelerate it? It's possible," said Mohamed El Jamal, managing director of Waha Capital Markets, the asset management division of Waha Capital, the Abu Dhabi-based investment firm. "But it would take a lot of effort and would be an exception to the text book.

Mr El Jamal, who oversees the investment of $300 million in Middle East and North Africa equity markets, said despite speculation about timing of when Saudi will be included, investors, including himself, had already been buying up shares in anticipation of the move - motivated not just by the possible MSCI upgrade but also by Saudi Arabia's efforts to make itself less reliant on oil revenues.

Saudi Arabia, which is on a reform drive, plans to sell shares in state oil company Saudi Aramco and the Saudi stock exchange operator itself as it seeks to woo more non-oil investments.

A number of risks remain on the horizon however, according to investors, including persistent lower oil prices and increased geopolitical tensions.

mkassem@thenational.ae

2025 Fifa Club World Cup groups

Group A: Palmeiras, Porto, Al Ahly, Inter Miami.

Group B: Paris Saint-Germain, Atletico Madrid, Botafogo, Seattle.

Group C: Bayern Munich, Auckland City, Boca Juniors, Benfica.

Group D: Flamengo, ES Tunis, Chelsea, (Leon banned).

Group E: River Plate, Urawa, Monterrey, Inter Milan.

Group F: Fluminense, Borussia Dortmund, Ulsan, Mamelodi Sundowns.

Group G: Manchester City, Wydad, Al Ain, Juventus.

Group H: Real Madrid, Al Hilal, Pachuca, Salzburg.

The%20specs

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

Griselda

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Company profile

Name: Infinite8

Based: Dubai

Launch year: 2017

Number of employees: 90

Sector: Online gaming industry

Funding: $1.2m from a UAE angel investor

NO OTHER LAND

Director: Basel Adra, Yuval Abraham, Rachel Szor, Hamdan Ballal

Stars: Basel Adra, Yuval Abraham

Rating: 3.5/5

Smart words at Make Smart Cool

Make Smart Cool is not your usual festival. Dubbed “edutainment” by organisers Najahi Events, Make Smart Cool aims to inspire its youthful target audience through a mix of interactive presentation by social media influencers and a concert finale featuring Example with DJ Wire. Here are some of the speakers sharing their inspiration and experiences on the night.
Prince Ea
With his social media videos accumulating more half a billion views, the American motivational speaker is hot on the college circuit in the US, with talks that focus on the many ways to generate passion and motivation when it comes to learning.
Khalid Al Ameri
The Emirati columnist and presenter is much loved by local youth, with writings and presentations about education, entrepreneurship and family balance. His lectures on career and personal development are sought after by the education and business sector.
Ben Ouattara
Born to an Ivorian father and German mother, the Dubai-based fitness instructor and motivational speaker is all about conquering fears and insecurities. His talk focuses on the need to gain emotional and physical fitness when facing life’s challenges. As well managing his film production company, Ouattara is one of the official ambassadors of Dubai Expo2020.

Key facilities

Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
Premier League-standard football pitch
400m Olympic running track
NBA-spec basketball court with auditorium
600-seat auditorium
Spaces for historical and cultural exploration
An elevated football field that doubles as a helipad
Specialist robotics and science laboratories
AR and VR-enabled learning centres
Disruption Lab and Research Centre for developing entrepreneurial skills