Emre Akcakmak, Portfolio Adviser at emerging and frontier markets manager East Capital, comments on the implications of Saudi Arabia’s inclusion in the FTSE Russell EM Index…
Saudi Arabia’s inclusion into various emerging markets indices is no surprise to us, as investors who have been witnessing significant efforts by the regulators, especially over the past two years. Next, and perhaps a more important step, will be an EM inclusion by MSCI which is tracked by a larger pool of assets.
With a USD500 billion market capitalisation that is comparable to South Africa, Indonesia, Malaysia and Russia, some 2.5 per cent expected weight in major EM indices and a very low foreign ownership that is below 2 per cent, we expect the interest in Saudi Arabia to increase exponentially from today to MSCI’s decision in June, and to the date(s) of actual index inclusion which we expect to take place in stages over the next 12-18 months.
We have been investing in Saudi Arabia for more than three years in our frontier and emerging markets strategies. As long-term investors in often overlooked markets such as Saudi Arabia, index inclusion news is yet another confirmation that the market is moving in the right direction, rather than being an opportunity to take profits and exit as some shorter-term investors tend to do.