Saudi could make MSCI emerging markets index by 2019

Saudi Arabia’s move to ease ownership restrictions on foreign stock investors will increase its chances of making MSCI’s emerging market index by June 2019, according to Credit Suisse.

The bank told Bloomberg that it sees the MSCI review process for the country starting next year.

This follows a recent announcement that the Tadawul index would ease requirements on foreign investors from $5bn under investment to $1bn under investment and change its settlement structure.

Over the next two to three years, “we see substantial upside potential from the successful implementation of capital market reforms and an upgrade to emerging-market status from MSCI,” Credit Suisse’s head of Middle East research Fahd Iqbal told Bloomberg.

He said the kingdom may even account for 5.5 per cent of the gauge should Saudi Aramco complete its planned initial public offering before then.

Despite this optimism, the bank said it had a bearish bias on the market over the next six months because of the risk of a drop in oil prices, global equities and earnings expectations.

Like other Gulf indexes, Saudi Arabia’s stock market performance is closely correlated with oil prices.

The Tadawul has slumped 30 per cent over the last year, in line with a 29 per cent decrease in Brent prices over the same period.