MSCI drops Saudi stocks after row

The global data provider MSCI will pull Saudi stocks from its indexes after refusing to comply with a deadline set by the Saudi bourse to resolve a month-long spat, which might concern some foreign investors. The Tadawul had set the Monday midnight deadline in demanding veto rights over the composition of certain indexes compiled by MSCI. The decision could threaten the international appeal of the kingdom's capital markets as it seeks to attract greater foreign investment.

"MSCI confirmed today that it may be forced to cease calculating indices containing securities listed on Tadawul," the company said in an e-mail to clients late on Monday, adding it would not comply with the Saudi demands. Tadawul warned MSCI that it would immediately cut off the supply of data and not grant MSCI the 30-day grace period it had requested. MSCI said it could not agree to the demands of Tadawul, which included the right to veto certain product licences that are sold to third parties to create instruments such as exchange-traded funds.

"This is a backward step. It will definitely harm the image of Saudi Arabia. It is already seen as difficult in terms of visibility and disclosure," said Gianluca Giardina, the senior fund manager at EIS Asset Management, the asset management arm of Emirates NBD. [e-mail]