Gulf MSCI upgrades could push Saudi bourse to open up

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Equities index MSCI’s decision to upgrade the UAE and Qatar to emerging market status could pressure Saudi Arabia to accelerate foreign ownership plans for its own bourse, fund managers said.

MSCI, whose indexes are tracked by investors with $7 trillion in assets, on Tuesday promoted the two Gulf countries from frontier market status at the fifth time of asking after the UAE introduced buyer cash-compensation procedure and Qatar modified its foreign ownership rules.

The upgrades could lead to more than $800m of new investment flowing into both markets, according to HSBC, with stock markets in both countries rallied following the news.

“It’s a gradual stage process, but with Qatar and the UAE both being added in this year, I imagine that this would push the Saudis in the right direction,” said Amer Kahn, fund manager at Dubai-based investment bank Shuaa Capital Asset Management. “When I say the right direction, it’s a direction they’re already headed in.”

Saudi Arabia’s Capital Markets Authority (CMA) said last month that it was in the process of finalising a long-delayed regulatory framework that would allow foreigners to directly own stocks in the kingdom.

To achieve emerging market status in MSCI’s index bourses are normally required to permit foreign ownership in securities of about 25 percent.  “We hear that the CMA is very interested in making Saudi part of the MSCI emerging markets as well,” Kahn added.

Saudi Arabia’s Tadawul market currently lists about $405bn shares.

MSCI delisted Saudi Arabian from its equities index in 2009 following a dispute over how it licences information from the exchange. It was reintroduced to MSCI in 2012.

In an emailed statement, Emad Mostaque, a strategist at Noah Capital Markets EMEA added that MSCI’s move “puts additional pressure on Saudi Arabia to accelerate its qualified investor program and we now believe this is likely over summer”.

Any move would likely put foreign ownership restrictions on companies located in the Islamic holy cities of Makkah and Madinah, he said.

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