Since May 2019, the MSCI Saudi Arabia and MSCI Tadawul 30 Indexes and the MSCI Saudi Arabia Investable Market Index (IMI) have outperformed the MSCI Emerging Markets IMI. Also, Saudi Arabia’s equity market has expanded to offer investors more-diversified sector exposures.
MSCI stands for Morgan Stanley Capital International, an investment research firm that provides stock indexes, portfolio risk and performance analytics, and governance tools to institutional investors and hedge funds. MSCI is perhaps best known for its benchmark indexes—including the MSCI Emerging Market Index and MSCI Frontier Markets Index. The company continues to launch new indexes each year and there are more than 280,000 MSCI indexes that are used to track the performance of industries, sectors, and regions.
The MSCI Emerging Market Index was launched in 1988 and lists constituents from 24 emerging economies including China, Egypt, India, Korea, Thailand, Brazil, South Africa, Mexico and Saudi Arabia.
Inclusion in the MSCI Emerging Markets index in 2019 was a major milestone for the Saudi stock market. Because mny mutual funds and ETFs are benchmarked to MSCI indexes when a company is added to an MSCI index, these funds are often required to buy shares of the company to maintain their tracking error. This passive buying can lead to an increase in the stock price.
Inclusion also increases credibility and exposure.
In the MSCI blog, Saurabh Katiyar recently examined Saudi equities five years after inclusion in MSCI’s Emerging Market Index. His Key Findings include:
All three MSCI Saudi Arabia indexes outperformed the MSCI EM IMI since May 2019 – the MSCI Saudi Arabia and MSCI Tadawul 30 Indexes and the MSCI Saudi Arabia Investable Market Index (IMI) have outperformed the MSCI Emerging Markets IMI.
An expanded opportunity set attracted foreign investors – The MSCI Saudi Arabia IMI has increased its constituents to 123 securities, as of June 3, 2024 (the latest rebalance date), from 70 on June 3, 2019.
Saudi Arabia ranked sixth in EM by free-float-adjusted market capitalization – A key development over the last five years has been the increased ownership by foreign investors in the Saudi capital markets, which had more than quadrupled at the end of Q3 2023 (USD 97.5 billion) from year-end 2018 (USD 23.1billion)
Catalysts for change: Vision 2030 and the Saudi Green Initiative – The ambitious programs of Vision 2030 have the potential to reshape the future trajectory of Saudi Arabia’s economy. This wide-ranging plan aims to boost development across numerous industries, including renewable energy, technology, tourism, health care and infrastructure, as the kingdom plans to invest more than USD 7.1 trillion in its economy over the next 10 years.
To read the full blog post, click here. It is an informative article.
