MSCI, the index manufacturer, has signed an agreement with the Saudi Stock Exchange Co., Tadawul, which will see the creation of a tradeable index, which the parties say can be used to create investment instruments including derivatives and ETFs.
The new tradeable index will be based on the broader MSCI Saudia Arabia index series, which in turn forms part of MSCI’s emerging markets indices. It is expected to be launched in the fourth quarter of 2018.
Earlier this year, in June, MSCI announced that it was adding Saudi Arabia to its ubiquitous Emerging Market index following an annual classification review.
Development of indices around the Saudi equity market is being made possible by factors such as the kingdom’s adoption of international financial standards, as well as an economic development programme intended to attract both domestic and international investors.
Khalid Al Hussan, CEO of Tadawul, said: “The creation of the joint tradable index provides a strong foundation for the development of index futures and other exchange-traded products. As the Saudi market is fully integrated into global emerging market indices, including MSCI, launch of an index will pave the way for ETFs and other products that enable investors to broaden exposure and diversify and risk while enhancing the overall efficiency of the market.”
The market capitalisation value of the Tadawul is estimated at more than $500bn, chiefly constituting companies that are Saudi based and do most of their business in the country. It has a far larger market capitalisation than other exchanges in the region, such as Qatar, Dubai, Abu Dhabi, Tehran, Bahrain and Beirut. Should a part-listing of Saudi Aramco, the national oil company take place on the local market, it would likely significantly increase the value of the local exchange.