Dubai:
Global index provider S & P Dow Jones Indices is in talks with 8 mid-sized and small asset managers in Saudi to launch IPO indices, reflecting a boom in the primary market, Charbel El Azzi, head of Middle East, Africa & CIS, S & P Dow Jones Indices told Gulf News.
S & P Dow Jones Indices have already given out 15 IPO indices in the past 18 months, riding on the expectations of the market opening up for foreign investors,
“A big chunk of the market has already established IPO indices, but now small and medium sized asset managers are looking at it,” Azzi said.
“We are talking more to the smaller players for IPO indices. The smaller asset managers are able to do it at a faster pace because of its size. Medium sized asset managers are like small fish, they can swim faster and they are quiet effective,” Azzi said.
The small to medium asset managers would target smaller investors, thereby taking the exposure to the masses.
In touch
“We are closely in touch with the Tadawul to ensure the liquidity stays in the exchange or in the Saudi market,” Azzi said.
This is far cry from Blackstone’s plan to launch a Saudi fund, which would be traded in the United States.
In other areas too the index provider has been working with major stock exchanges. The S & P Dow Jones Indices recently partnered with the Bombay Stock Exchange to set up the benchmark S & P index, and has created indices for other global exchanges.
“We would want diversify that base from just equities funds to Exchange Traded Funds, as well structured product market would hopefully pick up as well. That’s a big thing of us,” he added.
Biggest market:
Saudi, which has been the biggest market for the index provider, expects a flow of $20-30 billion (Dh73.5-Dh110 billion) over a period of time.
“Saudi is opening up its market due to diversify of investor base within the region, and they are looking at long term investors.
We hope that due to this sticky money, volatility would decrease a bit, and ultimately three things will improve ie transparency, IPOs and liquidity,” Azzi said.
He expects a spill over of fund flows to other markets in the Gulf, as investors would look at the Gulf as a key market.
“The money would not only come to Saudi, but it will help in regional capital markets as well. I think from the regional perspective UAE would need that liquidity, so also Qatar, Kuwait. Once the manager who is running an emerging fund will start allocating to our region, obviously it will give Saudi a higher allocation, but will also offer more allocation to the UAE and Qatar as well,” Azzi said.
“A lot of managers are not looking at our region because Saudi is not included. There would be a spill out effect on other regional capital markets,” he added.
Index upgrade:
S & P Dow Jones first instituted a stand-alone index for Saudi way back in 1995, but got changed to the latest methodology since 2004.
We also have a Saudi Arabia Sharia index, which got conceptualised in 2007. “We are still looking at two things, one is the settlement period, which is T+0, so international investors will have to pre-fund his account before investing in Saudi and the second issue is delivery-versus-payments (DvP), which was also an issue for UAE and Qatar, when it was upgraded in May 2014. These issues won’t go overnight, but Tadawul is talking to consultants to tackle that issue,” he added.
Subject to fulfilling of these requirements, S & P Dow Jones indices may reclassify it in the emerging market index, which could probably draw a weightage of 6-7 per cent in the index.
