Franklin Templeton funds get Saudi QFI status ahead of MSCI decision

MSCI is expected to announce whether it will include Saudi in its emerging market index later this week



US fund manager Franklin Templeton has announced several of its funds have become qualified institutional investors in Saudi Arabia.

The status will allow the funds to directly invest in the Saudi stock market days before index compiler MSCI is expected to announce whether it will include the kingdom in its emerging market index.

In March, rival index compiler FTSE Russell decided to upgrade Saudi Arabia to emerging market status after the kingdom announced a series of reforms designed to boost foreign investment.

Read: Saudi to join FTSE emerging index from next March, attract billions

These included changes to trading limits and the allowing of foreign asset managers to aggregate the orders of their portfolios and funds.

Read: Saudi stock exchange adjusts rules to attract foreign funds

Last month, S&P Dow Jones said it was also consulting with investors regarding a potential emerging market upgrade for the Saudi market.

Read: S&P Dow Jones may lift Saudi Arabia to emerging market status

“Saudi Arabia is a reform story on many levels. Bold fiscal reforms, including steps to reduce its reliance on oil, will put Saudi’s economy on more sustainable footing over the long-term,” said Bassel Khatoun, managing director, frontier and MENA, Franklin Templeton Emerging Markets Equity.

“At the same time, impressive capital-market reform is culminating in classification upgrades by key index providers.”

Franklin said around $3bn of foreign funds had come into the Saudi stock exchange this year, bringing total foreign investment to $9bn.

If MSCI chooses to include the kingdom in its index additional flows of around $35bn are expected, while the listing of state oil giant Saudi Aramco could attract another $50bn, the company added.

There has been speculation that the kingdom could delay the IPO, which officials hope will raise $100bn and value Aramco at up to $2 trillion, until next year to allow time for foreign participation in the market to increase.

Read: Saudi exchange counting on foreign funds to aid Aramco IPO

Franklin said QFI applications for its other funds were also under review.