Saudi stocks are on the global investor map after the local index joined the FTSE high. This is the first step for the local market to strengthen its presence among global markets,
The Saudi Stocks is joining the MSCI Emerging Markets Index, which is the highest in terms of liquidity in the index.
Saudi Arabia's accession to the FTSE Russell Index is an important factor in advancing Saudi stock markets. FTSE Russell is one of the UK's biggest stock indexes, with the shares of the top 100 British companies. The Saudi market is expected to attract 11.25 billion riyals ($ 3 billion) in foreign investment, which contributes to the increase of capital coming to Saudi Arabia.
The accession reflects the maturity of the market in terms of its legal and technical environment, with the development of regulations and regulations, easing restrictions on foreign investments, enhancing the level of governance, transparency and disclosure, and other factors that have contributed to the promotion of accession opportunities. The presence of the market in these international indices necessarily means that they match those markets in legislative and technical progress.
The market is not far away from emerging market indices, rather than emerging ones, although the market is highly liquid. Liquidity is at the top of the global market. However, the market is on schedule with foreign liquidity to flow next year with the accession of the domestic index to FTSE. With an expected weight without Aramco up to 2.7 percent, there are 20 billion riyals going to the Saudi market, as they are managed through funds that follow the method of investment "inactive." So it will stick to the relative weight of the market in the index, and the weight of listed companies in the index. It is estimated that the volume of trading that follows an active method of investment takes three times of the inactive method, which means that the amount will reach 62 billion riyals, and a total of 82 billion riyals of the index to join the "FTSE." The flow of liquidity will be gradual, especially inactive.
What distinguishes the inactive method is that it does not adhere to the weights of companies or the market of the index. Thus, it identifies investment options through its investment policy, and basic or technical investment determinants. These figures are expected to double when the MSCI index, with an investment liquidity of SR6 trillion, is active and inactive. This makes the liquidity rate high in the coming years.
The high level of liquidity will attract the interest of companies, especially the big ones, to put their shares in the market, to diversify the base of investors from local and foreign, institutions and individuals, and different investment capabilities, from huge to modest. In addition to the high level of liquidity that succeeds proposals, it reduces the risk of stumbling and then costs. High liquidity with diverse investor base and acceptance of international indicators of the local market makes the market more efficient by covering research centers and market houses of expertise, and providing investors with information. This contributes to making investment decisions more accurate, makes prices more equitable in their evaluation, as this is another factor that encourages the market offerings.
The market is expected to be active in the coming period, not only for the index's entry into international indices, but also for the development of the market in terms of investor quality and offering procedures. Tadawul has been receiving applications from next week. The activation of the "market makers" during the second half of this year, and the introduction of financial derivatives, options and futures, which are tools for risk management. This transformation of the market is a result of the "Vision 2030" and the program of financial leadership 2020, which puts the market in a phase of transformation; it makes it the main market in the region.
* Economic Reports Unit
