Index compiler MSCI and Saudi Arabia’s Tadawul stock exchange, the Arab World’s biggest, plan to launch a joint tradeable index that can help anchor investment instruments including derivatives and exchange-traded funds.
The index will be based on the MSCI Saudi Arabia gauge that will be part of the MSCI Emerging Markets Index and will be available in the fourth quarter of this year, MSCI said in a statement on Tuesday. An exchange-traded fund is a security that tracks an index and mimics the performance of a stock, while derivatives include a futures contract, which is an agreement to sell or buy a commodity or asset at a predetermined price at a specified time in the future.
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“Saudi Arabia has undergone a remarkably rapid period of change in the past few years,” said Henry Fernandez, chairman and chief executive officer of MSCI. “This joint index is possible as a result of the kingdom’s adoption of international standards and desire to create additional investment opportunities for domestic and international investors.”
MSCI upgraded in June Saudi Arabia to emerging market status following the kingdom’s implementation of market reforms aimed at wooing foreign investors to its equity market.
The inclusion of Saudi Arabia in MSCI’s widely-tracked emerging market index has helped the market gain 10 per cent so far this year and is expected to attract billions of dollars in foreign inflows.
“The creation of the joint tradable index provides a strong foundation for the development of index futures and other exchange-traded products,” said Khalid Al Hussan, chief executive officer of Tadawul. “As the Saudi market is fully integrated into global emerging market indices, including MSCI, launch of an index will pave the way for ETFs and other products that enable investors to broaden exposure and diversify and risk while enhancing the overall efficiency of the market.”
Saudi Arabia winning of the landmark inclusion in the MSCI emerging markets index paves the way for an estimated $40 billion of additional flows to its market, analysts have said. Inclusion will take effect in two phases, in May and August 2019.
The MSCI promotion follows similar moves by rivals FTSE Russell and S&P Dow Jones Indices.