Saudi Arabia’s efforts to reform its capital markets seem to have finally paid off. On June 20, MSCI, a leading provider of global equity indices, upgraded the kingdom from standalone to the status of an emerging market.
Billions of investment dollars will flow to the country as a direct result. More broadly, this decision vindicates the financial changes enacted by Saudi regulators in recent years and further heightens the kingdom’s appeal to international banks.
It has been a long time coming. As far back as 1997, Euromoney reported that Saudi Arabia’s capital markets would: “Require reform and liberalization if the kingdom is to build a dynamic economy on what is left of its oil wealth” and cited Saudi bankers eager for change. It has taken 20 years for the transformation to occur. The inclusion in MSCI’s emerging market index recognizes that evolution.
UBS believes MSCI’s decision could attract as much as $45 billion of capital inflows to Saudi Arabia, $10 billion from passive investors and $35 billion from active ones. FTSE’s inclusion of the kingdom in its own emerging market index earlier this year could attract a further $5 billion.