Tadawul's 5-tranche inclusion in FTSE index starts this month

The inclusion of Saudi stocks in FTSE Russell Global Equity Index Series (FTSE GEIS) will take place in the five tranches, starting this month, a senior analyst with SICO Bank told Argaam.

"Saudi Arabia is set to witness five tranches of FTSE inclusion during 2019 starting March 14th being the first and December 19th being the last," said Nishit Lakhotia, Head of Research, SICO Bank.

The MSCI inclusion will be in two tranches, which is May 30th and August 29^th, he added.

While SICO expects around $5 billion passive amount to flow through FTSE and $10 billion through MSCI throughout the year, Lakhotia believes the key trigger will be the "active money", which is “difficult to estimate”.

"It can be as high as 3x passive flows, or alternatively, can be significantly lesser if they [investors] believe Saudi is overpriced or they have more attractive alternatives in the emerging space," he stated.

In addition, Muhammad Faisal Potrik, Senior Vice President, Head of Research, Riyad Capital expects the total MSCI and FTSE index inclusion related inflows to be between SAR 70 and SAR 80 billion. 

The two experts, however, abstained from giving an estimate on the benchmark Tadawul All Share Index (TASI) closing level by year-end.

Given the expected foreign inflows, Potrik said the TASI is likely to breach fundamentals based index target and be more influenced by demand-supply dynamics in 2019.

"Although Tadawul has had a strong start to 2019, we believe this is not a one-way trend and there will be volatility around inclusion dates, especially MSCI and finally the index value will depend on how active flows will play out," Lakhotia noted.

Saudi Arabia will be the largest Middle East market in the FTSE Emerging Index with an overall weighting of 2.7 percent, while in the MSCI Saudi Arabia Index will have a weighting of approximately 2.6 percent in the Emerging Markets Index, with 32 securities.

Write to Parag Deulgaonkar at parag.d@argaamplus.com