Tadawul expects SAR 2.5 bln passive inflows after FTSE inclusion: CEO

The potential inclusion of Saudi Stock Exchange (Tadawul) in FTSE Russell Emerging Market (EM) index will lead to passive inflows of nearly SAR 2.5 billion in second tranche of inclusion, Khalid Al Hussan chief executive officer of Tadawul told Argaam in an exclusive on Tuesday.

The expected passive inflows would represent 15 percent of the market weight in the second phase of the Kingdom’s inclusion in the index.

Also read: Foreign ownership in Saudi stocks to reach 10%: Tadawul CEO

The Saudi market capitalization is estimated at nearly SAR 18 billion ($4.8 billion) on FTSE Global Equity Index Series, of which the local market saw inflows of 10 percent, or SAR 1.8 billion ($0.48 billion) last week.

Inflows from the second phase will be injected in the closing auction ahead of the market’s official inclusion in the index.

All tranches of Saudi Arabia’s inclusion in the EM indices will include passive cash inflows during the closing auction, and the calculation method of the Saudi benchmark in the EM index, Al Hussan said, adding the two steps will take a maximum of three days.

Tadawul’s inclusion in the MSCI Emerging Markets (EM) Index will be implemented in two tranches. The first 50 percent tranche will begin by the end of May 2019 with expected passive inflows of nearly $10 billion.

“A total of 80 Saudi firms have joined FTSE Russell index, while 32 others are added to MSCI EM Index. We’re working with the global index providers to further clarify corporate inclusion standards,” he added.

Also see: Tadawul inclusion in FTSE, S&P DJI begins

Companies are required to well understand these standards, as higher constituent weights imply an increase in the market weight.

Global index providers depend on two basic standards for inclusion, namely the liquidity size and constituents’ free float, along with other standards adopted by each index provider.

Last Thursday, offers were made by all investors, including foreign investors, foreign and local funds, and individual investors – that all represent active investors.

The same process was witnessed by all markets that joined global indices. Tadawul has neither implemented special amendments, nor offered additional liquidity.

“The market is likely to see liquidity pressures over the next tranches. However, liquidity will be available in the market until the completion of inclusion. Institutional investors worldwide and active investors are aware of passive inflows dates. Accordingly, the market is likely to have solid liquidity,” Al Hussan said.

The first tranche of Saudi Arabia’s inclusion in the FTSE Russel and S&P DJI Emerging Markets indices began yesterday, March 18, Argaam reported.