Saudi Arabia’s stock exchange, the Tadawul, in June is to be elevated to emerging from frontier status by market index provider Morgan Stanley Capital International (MSCI). The move, if it happens, comes after a one-year review of the market by the index compiler, and follows the same elevation in March by FTSE Russell.
With the exchanges in the UAE and Qatar upgraded in 2014, and Kuwait now awaiting the reclassification of its stocks after being elevated by FTSE Russell last September, all of the GCC’s biggest stock markets will have achieved emerging market status by this time next year. While such moves may appear to be little more than technical adjustments in the global scheme of things, they are a major step forward in the liberalisation and diversification of the regional economy.
The higher status guarantees that a sizeable chunk of passively managed institutional investment capital will be steered into regional corporations. Saudi firms alone could receive a $5bn equity boost from the upgrade.
But more fundamentally, the upgrades would reflect the purpose of the reforms that have been introduced by the bourses and their regulators to improve transparency and reporting in the corporate sector.
Boosted by the surge in oil prices, the improved regulatory environments, together with the public listing of major state assets such as Saudi Aramco, will transform the GCC corporate sector in the coming years.
To truly benefit, however, it is essential that the GCC’s stock markets can offer attractive opportunities for investors.
They need listings. It is vital that governments use these market upgrades to energise and accelerate the privatisation of inefficient state-run companies, and encourage the private sector to raise equity through stock market listings.
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