Saudi Arabian stocks are trading at the most expensive level since 2015 relative to emerging markets as foreign investors continue buying into a potential status upgrade by MSCI as oil surges.
The Tadawul All Share Index is trading at 15 times estimated earnings per share for the coming year, versus 12 times for the MSCI Emerging Markets Index. The spread between the measures is the widest since August 2015.
As of April 19, foreign investors were net buyers of Saudi stocks for the 16th straight week. They were net purchasers of 1.4 billion riyals ($370 million), more than any other week since at least October 2015, when Bloomberg started compiling the data.
The Saudi main stock index has gained about 15 percent this year. Investors are betting that MSCI will upgrade the kingdom to emerging market status in June, with implementation starting next year, after a similar decision by FTSE Russell last month.
Anticipation of the upgrade is rising as Brent crude trades at the highest level since 2014, which is beneficial for corporate earnings in the country that’s the biggest exporter of the commodity globally.
An initial public offering of oil giant Saudi Aramco in Riyadh could further boost interest in the local stock exchange.
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