Riyadh Joins The Club

Saudi Arabia has had mixed results in attracting foreign capital.

Last year should have marked a watershed in Saudi Arabia’s drive to attract foreign capital. Instead, 2018 for the kingdom’s equity market could best be described as two steps forward, one step back.

Last March, FTSE Russell announced Saudi Arabia’s upcoming addition to its Secondary Emerging markets list—a step forward. “Saudi Arabia’s inclusion in the FTSE benchmark is the largest event in the emerging markets since 2001, and an important development for global investors,” Mark Makepeace, CEO of FTSE Russell, said at a press conference.

In June, MSCI also added the kingdom to its Emerging Markets Index, which includes China, India, Russia and Brazil. When Saudi Arabia’s new index status takes effect in March, it is expected to increase liquidity and attract a substantial inflow of foreign capital: between $30 billion and $50 billion over the next two years, experts say. It’s another step forward.

But then in August, Riyadh announced it was postponing the much-anticipated initial public offering of its giant oil company, Saudi Aramco. The change of plan was a setback for the state’s privatization efforts and a disappointment to investors, although Crown Prince Mohammed bin Salman later said the IPO would take place in late 2020 or early 2021, predicting the state-owned company would fetch some $2 trillion.

By comparison, Saudi Arabia’s Tadawul, the largest bourse in the Middle East and Africa, has a market capitalization slightly under $500 billion. Riyadh first started opening its stock market to foreigners—qualified institutional investors only—in 2014; Saudi Arabia was immediately added to a number of global indexes’ watch lists.

Despite the delay in listing Saudi Aramco, the country’s addition to the FTSE and MSCI emerging markets indexes is a strong recognition of its recent efforts to strengthen its financial sector and meet global standards, as MSCI acknowledged in its 2018 market classification review.