No MSCI index inclusion for Tadawul

Saudi stocks closed lower yesterday, after the index provider MSCI did not add the country's equities to the review list for inclusion in its widely tracked Emerging Markets Index.

The index provider said that it welcomed the announcement of a series of market reforms, “and will continue to monitor the positive evolution in the opening of the Saudi Arabian equity market for international institutional investors”.

Saudi Arabia’s Capital Markets Authority announced last month it was easing restrictions on qualified foreign investors (QFI), and that it had approved a request from Tadawul, the country’s stock market, to amend the transaction settlement cycle for listed shares to the same day of the transaction from two days after the transaction. It also announced plans to introduce regulations for securities lending and covered short-selling.

The regulator intends to implement the changes by the end of the second quarter of next year.

“Once in effect, these enhancements will bring the Saudi equity market closer to emerging market accessibility standards,” said MSCI.

Saudi equities are only likely to be added to MSCI’s watch list for the EM index several months after such reforms are implemented, making early implementation essential, according to analysts.

“If 2019 inclusion [on the Emerging Markets Index] is a goal, it is important that the Tadawul implement changes to market infrastructure and QFI rules as early as possible in 2017 – preferably at the start of the year – to allow time for testing, and addition to the MSCI watch list in 2017,” wrote Egypt’s investment bank EFG Hermes.

The kingdom’s Tadawul All Share Index ended the day 0.9 per cent lower at 6,566.25.

Shares in the UAE and the wider Arabian Gulf (with the exception of Qatar) ended the day lower yesterday, in spite of a wider rebound of emerging market indexes ahead of the announcement of the US Federal Reserve’s decision on whether or not to raise interest rates.

Abu Dhabi stocks led losses across the Gulf, as a sharp fall by heavyweight names including FGB and Etisalat dragged the capital's headline index about 1 per cent lower.

The Dubai Financial Market General Index was little changed on the day, ending down 0.1 per cent at 3,324.70, with gains by Deyaar Development and du cancelled out by falls by Emaar Properties and Emaar Malls.

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