FTSE Russell, the global index provider, confirmed on Thursday 29th that Saudi Arabia's and Kuwait’s equity markets will be included in its Emerging Markets Index. Saudi will comprise 2.7% of the global total, and Kuwait 0.4%. The Kingdom will become the 10th largest stock market in the index.
At a technical level, the decision rewards the advances that the markets have made to their mechanics, operations, and accessibility, reflecting progress in areas such as clearing, custody and transparency regimes. To obtain the EM Index classification, the markets had to satisfy nine of the 21 key market quality and regulatory criteria, referred to as the FTSE Quality of Markets Matrix.
But the announcement carries far more weight than a simple technical adjustment. While the news has been long-expected, it is still a milestone for the markets and for the region, and brings another Arabian market into line with China, India, Mexico and Brazil, for example, on the radar of EM investors. Should MSCI follow suit in June and include Saudi Arabia in its EM index, the final barrier to international participation in the GCC’s largest market will have been removed.
For Saudi Arabia of course, the announcement comes as the Kingdom weighs up the listing of Saudi Aramco, a move that will attract unprecedented international interest in the Tadawul (and could increase Saudi’s FTSE EM Index weight to 4.6%). While no final decision has yet been announced on this front, Index inclusion will surely facilitate even greater international participation in the IPO.
For IR practitioners, index inclusion is a game changer. It is expected that $5.4 billion of passive funds could flow into Saudi stocks and EM investors will become a meaningful and material component of the shareholder register of Saudi companies. More seasoned analysts and investors will be examining the earnings announcements of Saudi firms, and multi-billion dollar funds will be asking questions during conference calls, attending investor meetings and voting at AGMs.
Many companies have been alert to the implications of index inclusion for some time now, and have begun to adhere to international best practice investor relations. Here at Iridium, we continue to play our role in driving and accelerating this trend by taking a scientific and practical approach to investor relations.
These are very exciting times to be involved in the GCC’s equity markets, and we look forward to welcoming this brave new world.