Tadawul's MSCI upgrade more likely than not: CE

An upgrade of the Saudi Stock Exchange (Tadawul) is more likely than not, given the proactive initiatives taken by the Capital Markets Authority over the past few years, Capital Economics (CE) said in a new report.

Foreign investors who meet certain conditions have been allowed to invest in Saudi equities since mid-2015. The minimum criteria for foreign investors was relaxed in 2016 while the Tadawul shifted to a two-day settlement cycle last year, it added.

According to MSCI, a possible Tadawul upgrade will give it a weight of around 2.4 percent in the Emerging Markets index. 

"Given that an estimated $1.9 trillion of assets under management track the MSCI EM Index, this could translate into inflows into the Saudi stock market of more than $45 billion, or around 7 percent of GDP," the consultancy noted.

In 2017, the Kingdom received total capital inflows of just over $25 billion.

Meanwhile, Capital Economics said any spike in capital inflows is likely to be temporary and oil prices will have "bigger" impact on the performance of the stock market over the coming years.

Tadawul is likely to struggle and is expected to end 2018 at 7,750 points, a decline of around 6 percent from its current level due to regional political tension, lower oil prices and deteriorating global appetite for risky assets, the consultancy noted.