MSCI changes benefit Saudi Arabia and Argentina
22 June 2018 New York
Image: Shutterstock
From June 2019, investor index provider, MCSI will include the MSCI Saudi Arabia Index in the MSCI Emerging Markets Index, the MSCI ACWI Index, and other global and regional indices as applicable.
MSCI said the decision follows the implementation in the Saudi Arabia equity market of a number of regulatory and operational enhancements which effectively increased the opening of the market to international institutional investors.
Over the past three years, the Capital Market Association (CMA) and the Saudi Stock Exchange (Tadawul) have implemented several enhancements that further opened the domestic equity market to international institutional investors, noted MSCI in its explanatory announcement.
Following the introduction of a regulation for qualified foreign financial institutions by the CMA in 2015, the means of access to the equity market evolved from indirect holdings using derivative instruments.
The CMA said: 鈥淭his regulation has since been enhanced twice by the CMA, reflecting feedback from international institutional investors.鈥�
鈥淭adawul implemented a complete overhaul of its operating model, including the introduction of T+2 settlement and delivery versus payment, in April 2017. This important change was aimed at more closely aligning Tadawul鈥檚 operating model with international best practices and further easing access to the Saudi Arabian equity markets for international institutional investors.鈥�
It added: 鈥淭he exchange continued its enhancement efforts with the introduction of a new closing price mechanism on 27 May 2018, moving from a value weighted average pricing to a closing auction.鈥�
MSCI said that international investors were impressed by the speed of change in the accessibility of the Saudi Arabian equity market and the level of commitment that the CMA and Tadawul have demonstrated.
The expectation now is that the current privatisation effort in Saudi Arabia will continue to grow the investable opportunity set available to them and hence, all other things being equal, contribute to an increased weight of Saudi Arabia in the Emerging Markets Index in the future, MSCI stated.
His Excellency Mohammed El-Kuwaiz, chairman of the CMA, commented: "The inclusion decision shall enhance the diversity of the investors' base as well as the liquidity of the Saudi Capital Market.鈥�
He added: 鈥淲e, at the CMA, will continue to further develop the Saudi Capital Market to ensure that the market facilitates investments, promotes confidence and protects investor and market participants."
Khalid Al Hussan, CEO of Tadawul, said: "Our work is never done, and additional market enhancements are in the pipeline as we continue to strengthen and grow investor confidence in the Saudi market.鈥�
Additionally, MSCI announced the reclassification of the MSCI Argentina Index from Frontier Markets to Emerging Markets status.
In particular, international institutional investors expressed their confidence in the country鈥檚 ability to maintain current equity market accessibility conditions, which is a key factor in MSCI鈥檚 classification framework.
However, in light of the most recent events impacting the country鈥檚 foreign exchange situation, MSCI also clarified that it would review its reclassification decision if the Argentinian authorities introduce any kind of market accessibility restrictions, such as capital or foreign exchange controls.
The MSCI Argentina Index will be included in the MSCI Emerging Markets Index coinciding with the May 2019 semi鈥恆nnual index review.
MSCI said it will continue to restrict the inclusion in the index to only foreign listings of Argentinian companies, such as American Depositary Receipts.
It said the feedback from international institutional investors stated that higher liquidity across the domestic market is needed before considering a shift from offshore to onshore listings.
MSCI said it will re-evaluate this decision as liquidity conditions on the Buenos Aires Stock Exchange continue to improve.
Sebastien Lieblich, MSCI managing director and global head of equity solutions, said: 鈥淏y supporting the inclusion of Saudi Arabia and Argentina in Emerging Markets, international institutional investors confirmed that they are now able and ready to access and operate in these markets.鈥�
The move will result in the expansion of the global investment opportunity set and allow for greater diversity in the MSCI Emerging Markets Index, which is important to investors, he added.
MSCI said the decision follows the implementation in the Saudi Arabia equity market of a number of regulatory and operational enhancements which effectively increased the opening of the market to international institutional investors.
Over the past three years, the Capital Market Association (CMA) and the Saudi Stock Exchange (Tadawul) have implemented several enhancements that further opened the domestic equity market to international institutional investors, noted MSCI in its explanatory announcement.
Following the introduction of a regulation for qualified foreign financial institutions by the CMA in 2015, the means of access to the equity market evolved from indirect holdings using derivative instruments.
The CMA said: 鈥淭his regulation has since been enhanced twice by the CMA, reflecting feedback from international institutional investors.鈥�
鈥淭adawul implemented a complete overhaul of its operating model, including the introduction of T+2 settlement and delivery versus payment, in April 2017. This important change was aimed at more closely aligning Tadawul鈥檚 operating model with international best practices and further easing access to the Saudi Arabian equity markets for international institutional investors.鈥�
It added: 鈥淭he exchange continued its enhancement efforts with the introduction of a new closing price mechanism on 27 May 2018, moving from a value weighted average pricing to a closing auction.鈥�
MSCI said that international investors were impressed by the speed of change in the accessibility of the Saudi Arabian equity market and the level of commitment that the CMA and Tadawul have demonstrated.
The expectation now is that the current privatisation effort in Saudi Arabia will continue to grow the investable opportunity set available to them and hence, all other things being equal, contribute to an increased weight of Saudi Arabia in the Emerging Markets Index in the future, MSCI stated.
His Excellency Mohammed El-Kuwaiz, chairman of the CMA, commented: "The inclusion decision shall enhance the diversity of the investors' base as well as the liquidity of the Saudi Capital Market.鈥�
He added: 鈥淲e, at the CMA, will continue to further develop the Saudi Capital Market to ensure that the market facilitates investments, promotes confidence and protects investor and market participants."
Khalid Al Hussan, CEO of Tadawul, said: "Our work is never done, and additional market enhancements are in the pipeline as we continue to strengthen and grow investor confidence in the Saudi market.鈥�
Additionally, MSCI announced the reclassification of the MSCI Argentina Index from Frontier Markets to Emerging Markets status.
In particular, international institutional investors expressed their confidence in the country鈥檚 ability to maintain current equity market accessibility conditions, which is a key factor in MSCI鈥檚 classification framework.
However, in light of the most recent events impacting the country鈥檚 foreign exchange situation, MSCI also clarified that it would review its reclassification decision if the Argentinian authorities introduce any kind of market accessibility restrictions, such as capital or foreign exchange controls.
The MSCI Argentina Index will be included in the MSCI Emerging Markets Index coinciding with the May 2019 semi鈥恆nnual index review.
MSCI said it will continue to restrict the inclusion in the index to only foreign listings of Argentinian companies, such as American Depositary Receipts.
It said the feedback from international institutional investors stated that higher liquidity across the domestic market is needed before considering a shift from offshore to onshore listings.
MSCI said it will re-evaluate this decision as liquidity conditions on the Buenos Aires Stock Exchange continue to improve.
Sebastien Lieblich, MSCI managing director and global head of equity solutions, said: 鈥淏y supporting the inclusion of Saudi Arabia and Argentina in Emerging Markets, international institutional investors confirmed that they are now able and ready to access and operate in these markets.鈥�
The move will result in the expansion of the global investment opportunity set and allow for greater diversity in the MSCI Emerging Markets Index, which is important to investors, he added.
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