Saudi Arabia’s stock market may fall on Sunday after index compiler FTSE decided to delay including Riyadh in its secondary emerging market index, while Kuwait may get little if any boost from its inclusion because of a low projected weighting.
In its annual country classification review on Friday, FTSE praised Riyadh’s market reforms but said it would need more time to evaluate their practical impact. It will therefore assess Saudi Arabia again next March: “It is anticipated that Saudi Arabia will meet the requirements for inclusion as a Secondary Emerging market from early 2018.”
The six-month delay will make little difference to the market in the long run but it may be taken as negative by retail investors who had been hoping to front-run a positive decision.
The Saudi index fell 0.6 per cent last week amid rumours that FTSE’s decision would be negative; blue chips which would probably have entered the FTSE emerging market index were some of the worst performers.
Meanwhile, FTSE said Kuwait would enter its emerging market index in September 2018. This had been expected by many investors and they may be disappointed by the fact it now appears Kuwait could get only a very small weighting in the index.
Before the decision, some analysts were talking of passive fund inflows of several hundred million dollars into Kuwait due to a positive decision. In a research report on Saturday, however, Arqaam Capital calculated that Kuwaiti stocks might only have a combined weighting of 0.11 per cent, resulting in $151.5m of inflows.
The Kuwaiti index fell last week on “market chatter that Kuwait will represent only 0.1 per cent of the index”, said Bader al-Ghanim, head of regional asset management at Kuwait-based Global Investment House.
Brent crude oil settled at $57.54 a barrel on Friday, up 1.2 per cent for the week and notching up a third-quarter gain of around 20 percent. The MSCI all-world market index rose 0.4 percent.
However, Gulf markets, worried by sluggish economic growth and austerity policies in the region, have been reacting little to strong oil prices and global equity trends.
Official data released on Saturday showed Saudi Arabia’s economy back in recession; gross domestic product, adjusted for inflation, shrank 2.3 per cent from the previous quarter in the April-June period, after dropping 3.8 per cent in the first quarter.