British share market index company FTSE Russell has promoted Saudi Arabia to secondary emerging market status with its FTSE Global Equity Index Series, in a move which will boost the attractiveness of the kingdom's stocks to international investors.
The decision to upgrade the Saudi Stock Exchange, or Tadawul, from "unclassified" followed a series of enhancements including changes to custody rules and a further opening to qualified foreign investors, FTSE Russell said.
"Saudi Arabia is to be congratulated on the pace of the recent market reforms which are widely acknowledged as being positive for the country and capital markets development in the region. The demand from international investors for benchmark and analytic solutions to facilitate their investments into the Middle East region continues to grow," FTSE Russell Chief Executive Mark Makepeace said.
The FTSE Russell will begin including Saudi Arabian domestic stocks into the FTSE GEIS from March 2019, making it the largest Middle East market in the emerging index with an overall projected weighting of 2.7%. Because of the size of the projected weighting, Saudi Arabia's inclusion in the FTSE Emerging Index will take place in several tranches, with completion expected in December 2019.
The potential impact of the Saudi Arabian Oil Co.'s proposed IPO on FTSE GEIS has also been modeled at the request of global investors, though the offering has yet to be confirmed. Based on the proposed initial 5% listing of the company on Tadawul, Saudi Arabia's projected weighting within the emerging index would increase to 4.6%. The company will not be eligible for the FTSE U.K. Index Series.
Saudi authorities are trying to attract more international capital under their Saudi Vision 2030 plan to reduce dependence on oil and diversify their economy,.
Other Tadawul reforms included dropping cash prefunding requirement for specific investors, introducing delivery of securities only after corresponding payment is made, and introducing securities borrowing and lending and covered short selling for all listed stocks.