When the first part of the MSCI upgrade took place in May, share trading in Saudi Arabia leapt to almost $8bn in a single day
It’s set to be a busy week for Saudi Arabian stocks, with volumes likely to surge as index compiler MSCI completes the country’s promotion to emerging-market status just as the US-China trade war escalates and concerns deepen about a global recession.
Saudi Arabia’s weighting on the New York-based company’s MSCI Emerging Markets Index will increase to 2.83% from 1.45% based on August 27 closing prices, it said in a statement earlier this month.
When the first part of the upgrade took place in May, share trading in the country leapt to almost $8 billion in a single day, the most in almost 13 years.
The heightened interest is driven mostly by foreign investors who passively track MSCI indexes. Their purchases from abroad have helped the index in Riyadh deliver more than six times the gains for equities from developing markets this year, and could help the index recover from the 2.4% loss on Sunday amid speculation that slowing growth globally will sap demand for oil, the country’s biggest export.
Inflows to the Saudi market this week could exceed $6 billion, according to estimates by Mohamad Al Hajj, an equities strategist at EFG-Hermes Holding in Dubai. That’s more than 11 times the average weekly net purchases by foreigners this year.
Still, some investors expect that the stronger volumes are unlikely to be sustained, given that Saudi Arabia’s new status arrives at a time when local stocks are trading at relatively expensive levels against a backdrop of a weak economy and escalating geopolitical tensions.
EFG-Hermes’s Al Hajj closed an overweight call on Saudi shares in July, saying a strategy built around the MSCI index inclusion had run its course, and also citing weak fundamentals for the chemical sector and lower earnings prospects for banks.