FTSE Russell has promoted Saudi Arabia to Secondary Emerging Market status (as opposed to Advanced Emerging), following the March 2018 interim country classification review.
Khalid Al Hussan, Chief Executive Officer of Tadawul
According to FTSE Russell, the move reflects the pace of change at which the Saudi Arabian authorities are able to implement market reforms. These reforms include the introduction of enhancements to the Independent Custody Model (ICM) and the further opening of Saudi Arabia’s capital market to Qualified Foreign Investors (QFI), which was initiated in 2015 and enhanced in 2018.
Following the upgrade in market status, FTSE Russell will begin to include Saudi Arabian domestic stocks into the FTSE Global Equity Index Series (FTSE GEIS) from March 2019. Saudi Arabia will be the largest Middle East market in the FTSE Emerging Index, with a projected overall weighting of roughly 2.7%.
This will impact the Vanguard FTSE Emerging Markets ETF (VWO US), the largest fund to track the FTSE Emerging Index. It has assets under management of $68bn having launched on the NYSE in March 2005.
Vanguard’s European-listed equivalent, Vanguard FTSE Emerging Markets UCITS ETF (VFEM), has $1.7bn in assets.
The country’s weighting would rise to 4.6% in the event of a Saudi Aramco IPO on the Saudi stock exchange, Tadawul Exchange. The significance of the weighting means that the country’s inclusion will be implemented in several tranches, due to be fully completed by December 2019.
Saudi Arabia will represent roughly 0.25% of the FTSE Global All Cap Index.
Khalid Al Hussan, chief executive officer of Tadawul, said, “Saudi Arabia’s promotion to Secondary Emerging market status in FTSE GEIS marks a significant moment in the development of our capital markets. We are proud of the achievements we have made to date to implement reforms and open our markets to international investors. We look forward to working with FTSE Russell to complete a smooth transition of our stocks into the global indexes over the coming months.”
His Excellency Mohammed El-Kuwaiz, chairman, Capital Markets Authority, said, “As part of Saudi Arabia’s Vision 2030, we are delighted to mark the country’s inclusion in the FTSE Russell global benchmarks.”
He went on: “Saudi Arabia’s inclusion in global benchmarks will further strengthen our position as the largest market in the Middle East region and we will work closely with the market during the transition period.”