Stock index provider MSCI, announced the signing of an agreement with the Saudi Stock Exchange Co. (Tadawul), the Arab World’s biggest in terms of market capitalisation and turnover, to create a joint tradeable index that can serve as the basis for investment instruments including derivatives and exchange-traded funds (ETFs). An exchange-traded fund is a security that tracks an index and mimics the performance of a stock.
In June 2018, MSCI announced the classification of the Saudi Arabian equity market as an Emerging Market as part of their annual global market classification review. The move is expected to attract billions of dollars of passive funds.
The Index will be based on the broader MSCI Saudi Arabia index series that will be part of the MSCI Emerging Markets Index. The joint tradeable index will be available in Q4 2018.
“Saudi Arabia has undergone a remarkably rapid period of change in the past few years. This joint index is possible as a result of the Kingdom’s adoption of international standards and desire to create additional investment opportunities for domestic and international investors”
Henry Fernandez, Chairman and Chief Executive Officer of MSCI said.
“The creation of the joint tradable index provides a strong foundation for the development of index futures and other exchange-traded products. As the Saudi market is fully integrated into global emerging market indices, including MSCI, launch of an index will pave the way for ETFs and other products that enable investors to broaden exposure and diversify and risk while enhancing the overall efficiency of the market.” Khalid Al Hussan, Chief Executive Officer of Tadawul, said.
The composition of new MSCI-Saudi tradeable index is not yet fixed, but the index provider will publish standards later, Fernandez said on Wednesday according to Reuters.
Tadawul said in a separate statement it would launch exchange-traded derivatives in the first half of 2019-nearly two years earlier than expected-as part of its strategy to diversify its product offering and provide more investment opportunities for market participants.
Derivatives include a futures contract, which is an agreement to sell or buy a commodity or asset at a predetermined price at a specified time in the future.
“The introduction of derivatives is part of the Vision 2030 Financial Sector Development programme. This reflects Tadawul’s ongoing commitment to create new opportunities for investors and to increase institutional investors' participation in the Saudi market,” added Al Hussan.
Riyadh has embarked on a string of market reforms since 2015, when the Tadawul opened itself to direct investment by foreign institutions and began easing restrictions on foreign ownership of companies.
The Tadawul is the 23rd largest stock market among the 67 members of the World Federation of Exchanges and is the 7th biggest stock market amongst its emerging market peers.
At the end of August 2018 the Saudi index (TASI) closed at 7,948.25 points, decreased by 346.58 points 4.18% over the close of the previous month. Total equity market capitalisation reached SAR 1,893.32 billion (US$ 504.88 billion), decreasing by 3.92% over the close of July 2018. TASI is up 10 percent so far this year.