Inclusion of Saudi firms in MT30 index depends on liquidity: CEO

The inclusion of Saudi companies in MSCI Tadawul 30 Index (MT30) just depends on free float capitalization and liquidity size, Khalid Al Hussan, chief executive officer of Saudi Stock Exchange (Tadawul) told Argaam on Thursday.

“Five-year historical data have been prepared for MT30 index to allow a clear review of the index performance, so that it can be used in investment instruments, such as funds or derivatives,” Al Hussan said.

“Tadawul and Morgan Stanley will develop new indices that include more constituents to meet investor demand. Work is ongoing to find opportunities in this industry in the Saudi equity market,” he added.

Markets and index compilers usually put a certain cap for the weights of listed companies to avoid the potential impact of one constituent on the index.

The maximum weight on Tadawul is capped at 25 percent, while the largest-weighted firm stands at nearly 14 percent. In case the weight exceeds that ceiling, a 15 percent cap will be applied to TASI constituents.

For sector weights, banks account for 47 percent of MT30 index, while materials represent 31 percent.

“MT30 is unlikely to weigh on TASI, or vice versa. Both indices will be affected by the performance of their constituents based on weight,” Al Hussan continued.

MT30 gauge allows the Kingdom to develop diversified investment products in the local equity market, such as exchange-traded funds (ETFs), futures, options contracts, and other derivatives.

“Saudi Arabia is likely to begin trading on futures this year. The futures will be linked to the index, rather than a certain company,” he said.

Orders on futures will not have any impact on MT30.

Explaining the difference between MT30 and derivatives trading in Nasdaq Dubai, Al Hussan said Nasdaq Dubai launched futures trading on the shares of 12 Saudi Arabian companies.

“Generally speaking, when markets launch futures trading on assets of Saudi firms, this signals attractive investment opportunities in the Saudi market,” Al Hussan concluded.

MSCI and the Saudi Stock Exchange (Tadawul) announced the launch of the MSCI Tadawul 30 Index (MT30), a tradeable index, Argaam reported.