MSCI’s recent move to include Saudi Arabia on the MSCI Emerging Markets index will attract “significant” capital inflows of $45 billion to the kingdom, according to UBS Global Wealth Management’s chief investment office.
According to UBS, the inclusion should translate into $10 billion from passive and $35 billion from active investments, in addition to $5 billion in inflows stemming from rival index provider FTSE’s recent inclusion of Saudi Arabia on its own Emerging Market benchmark.
In a statement, UBS noted that potential IPOs and an increased quota for foreign investor holdings might trigger additional inflows in coming months, with the market supported by fundamentals including higher energy prices and an ongoing recovery of corporate earnings.
Long-term risks
However, UBS also identified a number of long-term risks for investors, including the possibility of renewed oil price weakness affected the kingdom’s fiscal and external balances as well as geopolitical tensions in the wider region.
“While we expect a short term increase in Saudi Arabia’s performance following the MSCI inclusion, we also advise investors to keep an eye on fundamentals,” said Michael Bolliger, head of EM asset allocation, UBS Global Wealth Management, chief investment office.
“Diversification is elementary for the country’s long-term economic success and the current momentum should be used to channel foreign direct investment into a range of strategically relevant sectors, which is a key objective of the Saudi Vision 2030.”
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