Saudi Arabia and China end up in the list of losers

Saudi Arabia missed out on emerging market status last night but MSCI said it would continue to monitor the positive evolution of the opening of the Tadawul to international institutional investors.

It said the announced changes, including changes to the settlement cycle of listed securities, elimination of the cash prefunding requirement and the introduction of proper delivery versus payment – as well as changes to the rules for Qualified Foreign Investors – are planned to be implemented by mid-2017.

Once in effect, these enhancements will bring the Saudi equity market closer to Emerging Market accessibility standards, it said.

EFG-Hermes said in a research note that this “puts further pressure on implementation of the announced changes as early as possible, as it seems that foreign institutional investors and MSCI want more details and ability to test these changes before giving a view on the Saudi market”.

It added that with Saudi Arabia still off the review list, May 2019 is officially the earliest possible Emerging Market inclusion date for Saudi Arabia.

US index provider MSCI also said it will not add domestic Chinese equities to its global emerging markets benchmark index, concluding that the country has more progress to make in sufficiently liberalising its capital markets.

The decision is a setback for Chinese officials, who had hoped the inclusion of domestic stocks in the widely tracked MSCI Emerging Markets Index would usher in as much as $400 billion of funds from asset managers, pension funds and insurers to mainland China’s equity markets over the next decade.

“International institutional investors clearly indicated that they would like to see further improvements in the accessibility of the China A shares market before its inclusion in the MSCI Emerging Markets Index,” Remy Briand, MSCI managing director and global head of research, said in a statement.


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