Investors Brace for FTSE Verdict on S. Arabia, Kuwait
FTSE Russell is set to announce over the weekend in the Middle East if it will add Saudi Arabia and Kuwait to its list of emerging markets in what could spur a surge in inflows to both markets and be a prelude to MSCI Inc. inclusion next year.
While recent market infrastructure improvements have been made in both countries, analysts and investors say Kuwait may be closer to being added than Saudi Arabia, which is aiming to modernize its market ahead of the sale of shares of state-controlled oil company Saudi Arabian Oil Co. in what is being tipped as the biggest initial public offering in history.
FTSE is expected to announce its country classification annual review on Friday after markets close in the U.S.
The Saudi Capital Markets Authority and Tadawul stock exchange have already made substantial modifications to the Saudi Arabian equity market infrastructure and accessibility which position it well for inclusion, according to Bassel Khatoun, chief investment officer of Middle East North Africa equities in Dubai.
In Saudi Arabia, “we believe that the FTSE criteria failings raised in the March review have now been addressed by the expansion of the settlement cycle from T+0 to T+2, the introduction of delivery versus payment (DvP) settlement provision, proper failed trade management, and the introduction of short-selling and securities borrowing and lending facilities. This is testament to the ambitious capital market reform agenda which has been successfully undertaken in Saudi Arabia over the past two years.”
Initially, Saudi Arabia could constitute about 2.5 percent of FTSE secondary emerging index, resulting in passive fund flow of about $3 billion, according to Khatoun. “However, with the privatization of Saudi Aramco, the most valuable company in the world, Saudi Arabia’s weight in the index may increase to about 5 percent over time,” he said. “Kuwait’s share of the index is likely to be closer to 0.5 percent, resulting in flows of $600 million.”