Saudi Arabia Selected for MSCI Inclusion; Analysts Expect Significant Capital Inflows

Following years of effort by Saudi officials to increase transparency in its stock market, the Kingdom won inclusion into MSCI, Inc.’s highly sought-after emerging market index, expanding the asset class by as much as $600 billion for the Kingdom.

The news, announced overnight in Saudi Arabia, was welcomed by Saudi officials and executives at the Kingdom’s bourse. Saudi Arabia’s main regulator, the Capital Markets Authority, said that it expects $40b in foreign fund inflows in the months after the announcement.

The decision may also boost foreign stock ownership to above 10 percent of market capitalization. Currently, the figure stands at only 2 percent.

Saudi Arabia’s journey to the landmark decision began years ago, as the Kingdom moved to make markets more transparent and bring its markets more in line with international standards.

Then, a little over one year ago, on the same day that Crown Prince Mohammed bin Salman was promoted to his current post from Deputy Prime Minister, the MSCI Inc., announced that Saudi Arabia would be considered as part of 2018’s review process.

The successful inclusion of Saudi Arabia in the index is good news for the Kingdom’s efforts to attract greater inflows of capital and investment, and marks a milestone in the Kingdom’s ongoing plans to open up to the world.

An MSCI Inc., executive said the company is “quite positive about the sustainability of changes in Saudi Arabia.”

The inclusion also comes amid high anticipation over the market listing of Aramco, according to CNBC, which could be the largest publicly-traded company globally.