Tadawul could lure SAR 12 bln with FTSE upgrade, says NCB Cap

The Saudi Stock Exchange (Tadawul) could attract around SAR 12.1 billion ($3.2 billion) in cash flows upon joining the benchmark FTSE Emerging Markets/FTSE Emerging Markets All Cap indices, NCB Capital said in a report.

The investment bank added that most firms would benefit from a potential upgrade by index compiler FTSE, but named its top picks as Yanbu National Petrochemical Co. (Yansab), Saudi International Petrochemical Co. (Sipchem), Jarir Marketing Co., Saudi Airlines Catering Co., Saudi Ground Services Co (SGS) and Saudi German Hospital.

The Kingdom is currently on the watch list for inclusion in the index and FTSE Russell Group, the global benchmark index provider, will announce the results on Sept. 29.

Since being shortlisted in September 2015, the Saudi market has implemented several developments, including implementing the T+2 settlement, reducing the requirements for QFIs and amending foreign ownership limits.

"We believe there is a tactical opportunity for investors to benefit from these inflows. However, investors need to be selective, given the Tadawul trades at 2018E PE of 13.7x, a 12.3 percent premium to the FTSE Emerging Markets index," the investment bank added.

The FTSE Emerging Markets Index is a $4,245 billion investability weight adjusted market cap index, covering 992 stocks across 23 countries.

A total of 34 Saudi companies with a total investability weight adjusted market cap of $110 billion are included, representing 2.6 percent of the index.

Meanwhile, these companies have a full market cap of $295 billion, representing 63.8 percent of the Tadawul’s market capitalization.

"With a total investability weight adjusted market cap of $110 billion and a weight of 2.6 percent, we expect inflows of $2.85 billion once any potential upgrade is implemented," NCB Capital said.

In June, the Kingdom was added to MSCI’s watch list for a potential upgrade in 2018, Argaam earlier reported.