Announcement that the Saudi cabinet has approved plans to open up its
\nstock market to foreign financial institutions in H1 2015 is a long-awaited step
\ntowards MSCI EM index inclusion. Coming just over a month after the UAE and
\nQatar\u2019s upgrade to EM status, the latest decision could eventually lead to the MENA
\nregion becoming as large as 5.2% (with Saudi accounting for 4%) of the benchmark
\ncompared with just 1.2% at present. MSCI could start evaluating the current
\nproposals in June 2015, conclude the process by June 2016 and implement EM
\ninclusion by June 2017.<\/p>\n
MSCI currently recognises Saudi via a domestic index with 45 constituents and
\n$183b of free float market cap (43 stocks can currently be traded by foreign
\ninvestors via swaps). With all but one stock having both a free float market cap
\nabove $1b and trading more than $1m per day, there is ample scope for this index
\nto qualify for EM status (N.B.: it would be unprecedented to move directly to EM
\nfrom standalone status). We estimate that depending on the number of stocks
\nqualifying for EM inclusion, potential passive and active inflows could total anywhere
\nbetween $13.3b-26.6b. The MSCI Saudi index constituents currently trade $1b\/day.<\/p>\n
The opening of the Tadawul to foreign investors also confirms the authorities\u2019 focus
\non economic diversification and steady economic reforms, particularly in the
\nhousing and labor markets, in our view. Macroeconomic fundamentals remain
\nrobust. Consumer and business confidence could be boosted by positive
\nperceptions of the market opening. Increased foreign institutional investment is
\nlikely to help improve corporate governance, widen the pool of available savings
\nand boost Fx reserves accumulation. The economy has weathered reasonably well
\nthe impact of the labour market reforms and we see growth hovering around 4%.<\/p>\n
We have maintained an Overweight stance in Saudi for many years and currently
\nprefer this market to both the UAE and Qatar (where we are Neutral). Saudi\u2019s
\nmarket benefits from positive macro catalysts accelerating domestic oil production,
\nimproving Chinese activity data and slowing domestic inflation. Valuations are not
\nlooking stretched, trading at a consensus 2014 P\/E of 14.6x with 14% earnings
\ngrowth, in-line with its long-run average premium to EM. <\/p>\n
Our fundamental analysts prefer stocks with exposure to earnings growth potential
\n(Samba, SIIG) and attractive cash usage (SABIC, Yansab) and also believe
\ninvestors will revisit the consumer and retail sector ahead of improving labour
\nmarket trends.<\/p>\n","protected":false},"excerpt":{"rendered":"
Announcement that the Saudi cabinet has approved plans to open up its
\nstock market to foreign financial institutions in H1 2015 is a long-awaited step towards MSCI EM index inclusion.<\/p>\n","protected":false},"author":1,"featured_media":35860,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1483],"tags":[1663,1809,1671,1651,1437,1999,2239],"_links":{"self":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/35862"}],"collection":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/comments?post=35862"}],"version-history":[{"count":0,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/35862\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media\/35860"}],"wp:attachment":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media?parent=35862"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/categories?post=35862"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/tags?post=35862"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}