S&P Dow Jones Indices upgrades Saudi Arabia classification to EM

Move follows similar actions from FTSE and MSCI

The classification change will become effective in two phases: from the beginning of March 2019, the quarterly rebalancing of S&P DJI and the second in the annual reconstitution of indexes in SeptembeShow more

Global equities index provider S&P Dow Jones Indices will change the status of Saudi Arabia’s $530 billion equity market, the biggest in the Arabian Gulf, to an emerging market in 2019.

S&P DJI took the decision to upgrade Saudi Arabia’s standalone status “in response to recent positive market structure reforms to support foreign investment and a strong consensus among members of the investment community”, It said in a statement.

The classification change will become effective in two phases: from the beginning of March 2019, the quarterly rebalancing of S&P DJI and the second in the annual reconstitution of indexes in September 2019, the index provider said.

S&P Dow Jones Indices is the third index complier to elevate Saudi Arabia’s market to emerging market status. These upgrades are expected to bring tens of billions of dollars of investment to Saudi equities from global money managers which track these gauges.

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FTSE Russell in March this year upgraded Saudi Arabia after the kingdom implemented a series of reforms to develop its capital markets in line with its Vision 2030 economic diversification strategy.

MSCI in June also followed suit with a similar move that will pave the way for an estimated $40 billion of additional flows to the Saudi stock exchange, known as Tadawul.

The MSCI Inclusion will take place in two phases, in May and August 2019. The index compiler has given Saudi stocks a representative weighting on a pro forma basis of approximately 2.6 per cent of its emerging market index, with 32 securities included in the gauge.

The potential listing of a 5 per cent stake in Saudi Aramco, the world's biggest oil producer, in 2019 would further cement the Middle East's international profile, raising the kingdom's weighting to "up to 4.4 per cent", Sebastien Lieblich, the MSCI's managing director and global head of equity solutions, told The National in June.

Saudi Arabia has been making key steps to clinch the emerging market status.

In January, the Saudi Arabia’s Capital Market Authority made it easier for international investors to buy publicly-traded companies by halving the minimum requirement of qualified foreign investors to $500 million from $1 billion.

As well as introducing T+2 settlement, which means that securities settle two days after they are bought, the CMA has also introduced Nomu, a parallel market for qualified investors as well enabling securities borrowing and lending, and the adoption of International Financial Reporting Standards for listed companies.