Invesco has attracted USD315 million into its MSCI Saudi Arabia UCITS ETF only eight months after its launch last June, making it the largest ETF in the world giving access to the country.
The product was the first ETF in Europe to provide pure passive exposure to Saudi Arabia, offering investors access to the largest economy in the Middle East. It is available in USD on the London Stock Exchange.
Gary Buxton, Head of EMEA ETFs at Invesco, says: “We have seen strong client demand for this ETF mainly because Saudi Arabia is undertaking a series of major reforms intended to improve growth, diversify away from hydrocarbons and to make the country into an epicentre for global trade. Part of this process includes an opening up of the Saudi equity market as a result of which MSCI announced that Saudi Arabia will be added into its Emerging Markets Index from May this year. This inclusion means Saudi Arabia is more attractive to investors.”
The reforms within the ‘Saudi Vision 2030’ programme are intended to reduce the economy’s dependency on government funding and oil exports. They have several objectives, including increasing the contribution of private sector consumption to GDP, the number of Saudis working in the private sector and the use of solar and other renewable energy sources. They also want to encourage major domestic companies to expand across borders and into global markets.”
Another objective is to attract foreign direct investment and, in fact, the programme is going to be partly funded by a 5 per cent sale of state-owned oil giant Saudi Aramco. The IPO is likely to be in 2019 and could raise up to USD100 billion, making it by far the largest IPO in history.
Saudi Arabia began opening its equity markets to foreign investors in 2015 and has since eased foreign investor requirements and brought trade settlement more in line with global standards. As a result, MSCI announced on 20 June 2018 that they were adding Saudi Arabia to their Emerging Market index. Saudi Arabia will be included in two steps from the end of May and August 2019 with an estimated final weighting of around 2.8 per cent. With USD1.8 trillion tracking the MSCI Emerging Markets index this equates to a potential inflow of more than USD50 billion as investors respond to the change in the index. . Saudi Arabia was one of the best performing equity markets last year, and has gained almost 10 per cent since the index inclusion announcement, MSCI Emerging Markets fell 3.3 per cent over the same period.
The Invesco MSCI Saudi Arabia UCITS ETF tracks the performance of the MSCI Saudi Arabia 20/35 index, which has constraints to ensure it meets UCITS requirements for diversification and avoids over-concentration. The index comprises 30 large- and mid-cap stocks, accounting for approximately 85 per cent of the free float market capitalisation in Saudi Arabia.