The country will become the largest Middle Eastern market in the FTSE Emerging Index when it joins in a graduated process starting in March 2019. By the end of the process, which is taking place in stages so index trackers have time to properly replicate the underlying index, it will account for 2.7% of the index.
Within the FTSE Global All Cap index the country is projected to have an index weight of around 0.25%.
However, those weightings could almost double if the proposed Saudi Aramco listing went ahead on the Saudi Stock Exchange, also known as the Takawul. If the state oil giant listed just 5% of shares, Saudi Arabia would come to represent 4.6% of the emerging markets benchmark, FTSE Russell modelling shows.
East Capital portfolio adviser Emre Akcakmak said the inclusion was “no surprise” because Saudi regulators have been introducing a number of market reforms, especially over the last two years.
“Index inclusion news is yet another confirmation that the market is moving in the right direction, rather than being an opportunity to take profits and exit as some shorter-term investors tend to do,” Akcakmak said.
Gulf Investment Fund chairman Nick Wilson said the index inclusion was an important development for global investors and positive for the region.
“As a fund we are steadily increasing our exposure to Saudi Arabian equities and believe that the inclusion is likely to generate significant tracker fund inflows,” Wilson said.
However, Akcakmak said inclusion in MSCI’s indices would be more significant, because they are tracked by more assets.
MSCI will be making a decision in June.
Saudi Arabia Capital Markets Authority chairman Mohammed El-Kuwaiz said they have worked closely with index providers and international investors to ensure their capital market reform programme set the “highest regulatory standards”. El-Kuwaiz said they will work closely with the market during the transition period.
Saudi Arabia follows in the footsteps of Kuwait, which FTSE Russell announced had been upgraded to an emerging market in September 2017. It will be included in indices from September 2018.