“Saudi Arabia’s addition to the MSCI Watch List is an important milestone for Tadawul, and reflects the Kingdom’s significant progress in capital market reform in support of Vision 2030,” said Sarah Al Suhaimi, Chairperson of Tadawul. “Potential inclusion in MSCI’s Emerging Market Index signals to international investors that the country’s capital market has attained greater maturity in terms of efficiency, governance and regulatory framework.”
The Kingdom’s addition to the Watch List and anticipated inclusion in the MSCI Emerging Market Index will ultimately make Tadawul, its constituent listed companies and investors who trade on it, benefit from what is anticipated to be a greater allocation of weighting of global emerging market funds to the Exchange. Overall, growth in emerging markets globally is expected by the International Monetary Fund to improve for the second consecutive year, rising to a projected 4.5 percent in 2017, compared to 4 and 4.1 percent in 2015 and 2016 respectively.
Over the past year, Tadawul and the Capital Market Authority (CMA) have worked closely with Saudi government bodies and leading emerging market investors to introduce Vision 2030 capital market reforms, and these have in turn helped move the needle further on achieving Watch List status. Key reforms to date have, among others, included:
• The introduction of T+2 settlement and securities borrowing and lending, which have significantly enhanced the ease of trading and created new opportunities for market participants.
• Adoption this past January of the Global Industry Classification Standard (GICS) which enhances comparability of corporates across markets and enables easier analysis of sector performance.
• A Delivery versus Payment Model (DvP) to comply with the principle of DvP, to provide an extra layer of trade execution security to investors that trade securities on Tadawul.
• Adoption of new corporate governance rules issued by the Saudi Capital Market Authority (CMA) in February to enhance the rights of shareholders and board members and provide greater clarity and more transparency around determining commercial strategic planning, and roles, responsibilities and oversight of corporate entities and third parties.
• Investor relations training for Tadawul’s 24 corporates with the most international exposure and liquidity to enhance transparency and disclosure and enhance investor relations capabilities within Saudi listed companies.
• Enabling foreign participation in Saudi IPOs.
• Introduction of Nomu, a parallel equity market for Qualified Investors that offers lighter listing requirements and serves as an alternative platform for companies to go public.
• Launch of a Real Estate Investment Trusts’ (REITs) market to further broaden and diversify investment opportunities.
• Enhancements to the Independent Custody Model which enable custodians to reject the settlement of unconfirmed trades executed by the executing brokers.
• Dropping the Exchange requirement of cash prefunding for specific investors to align trading practices with international standards and standardize institutional investors’ trading processes.
• Spin-off of the Securities Depository Center (SDC) to enhance the efficiency of deposit and registration services offered by the depositary center.
“Today’s announcement from MSCI is an immense achievement for Tadawul and the Saudi market. However, it is still just another stepping stone toward gaining full Index inclusion,” said Khalid Al Hussan, Chief Executive Officer of Tadawul. “We must continue to make efforts to further strengthen the market through reforms and build investor confidence so that we may maximize our position in 2018 to be formally listed alongside other global markets in MSCI’s Emerging Market Index.”
Continued Al Hussan: “With anticipated MSCI index inclusion now one step closer and a number of other favorable dynamics taking place in the Saudi market, Saudi Arabia’s ongoing economic transformation through diversification and privatization and favorable demographics for sustainable growth makes it a uniquely attractive emerging market.”
Saudi Arabia, which opened its market to international investors in June 2015 through its Qualified Foreign Investor (QFI) program, has to date registered more than $ 5.48 billion worth of investable assets. The value of QFI holdings increased more than 3.5 times during Q1 of 2017, while value traded on the Exchange increased by 19.9 percent month-over-month in May 2017.