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EFG Hermes says the kingdom has "a 100 percent probability of being included in the emerging market index this month"
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Increased capital inflows: The MSCI Emerging Market Index has $1.9tr worth of assets benchmarked against it. Inclusion on the index would not only increase the exposure of Saudi stocks to international investors but also lead to passive inflows from funds that follow its progress – all of which could equate to a boost of as much as $15bn.
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Enhanced liquidity: The Saudi Arabian Monetary Authority (SAMA) last year issued a series of measures to address the lack of liquidity, including discounting lending rates. While the picture has improved, it had slid back by the end of Q1, reducing the ability of banks to lend money. Capital inflows with the MSCI listing will substantially boost liquidity in the Saudi economy.
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Increased trading volumes: Being included in a global index such as MSCI ought to lead to a fall in equity risk premium – the cost of capital, effectively – as the risk is spread and so draw in new investors from around the world. As stock prices swell as a result, then even more investors are drawn to the market in a virtuous cycle.