Friday, 20 July, 2018

Franklin Templeton funds become qualified foreign investors (QFI) in Saudi Arabia

Saudi Aramco Clears Another IPO Hurdle | OilPrice.com Saudi Arabia added to the MSCI EM index
Scott Davis | 23 June, 2018, 13:29

Dominic Bokor-Ingram, portfolio adviser at Fiera Capital, said: "Saudi Arabia is the largest, most liquid emerging market in the world with practically no foreign involvement to date". The index provider says it makes its decisions in part based on investor experiences of accessibility, in addition to the presence of regulatory frameworks that are similar to those found in developed markets.

In March, rival provider FTSE announced that it would upgrade Saudi Arabia to emerging market status, while S&P Dow Jones said in May that it was holding consultations with investors in a bid to determine whether it would do so as well. That decision made Saudia Arabia one of the largest constituent countries in FTSE Russell's global coverage.

Analysts estimate inclusion in MSCI's benchmark could lead to as much as $45 billion of new capital being invested in the kingdom.

Inflows are expected from both passive and active funds, Mohammed bin Abdullah Elkuwaiz, chairman of the Saudi Capital Market Authority (CMA), told Reuters in an interview, adding that around $10 billion would come from passive funds. "We believe such factors could be supportive of higher mid-cycle valuations", they said.

Elkuwaiz said the Saudi bourse operator and CMA are making sure the necessary framework is in place for the $100 billion Aramco IPO. "When Saudi Arabia is included in the MSCI EM index, its portion will be around at 2.3 percent, reducing South Korea's portion by 0.49 percentage point". Finance Minister Nicolas Dujovne welcomed the return to a status the nation last held nine years ago, saying Argentina will gain access to cheaper credit and bring more investment, growth and employment.

Meanwhile, the MSCI Argentina Index has also been reclassified from Frontier Markets to EM status, following investors' confidence in the country's ability to maintain current equity market conditions.




Mr Al Hajj said he expected additional inflows of between $30bn-$45bn into Saudi Arabia by the end of 2019 as a result of the anticipated upgrade.

If Aramco goes public, MSCI capital inflows would double to around $90 billion, according to Usman Ahmed, managing director, investments, at Emirates NBD Asset Management.

Saudi market will probably face hurdles in retaining foreign money unless companies become more transparent, some investors said.

In the past three years, the Saudi stock market "has become much more open and much closer to global standards", said Mazen Alsudairi, head of research at Al Rajhi Capital Co.in Riyadh.

"We won't just see ETFs, we will see more diversity in investment vehicles". "We note, the MSCI Saudi index is heavily weighted towards the Saudi banks and materials companies (petrochemicals, mining and cement). Other sectors including utilities, insurance, retail and real estate account for the remainder", Merrill Lynch said. "This could have a greater impact on the local market than in the case of China (which joined the emerging markets index in June)", Ha noted.

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