‘Wall of liquidity’ seen coming into Saudi Arabian equities

Dubai:

A wall of liquidity is seen coming into Saudi Arabia’s equities due to a potential upgrade of the country in the emerging market index of the MSCI, according to Franklin Templeton Investments.

Saudi Arabia’s equities may see an inflow of $50 billion (Dh183.50 billion) in new funds, about 25 per cent of the free float. This capital may flow into the market if Saudi Arabia’s equities find its place in the MSCI emerging market index after the successful inclusion in the FTSE Russell’s gauge.

“We think that people are still waiting for the announcement of Saudi markets inclusion in the emerging markets,” Salah Shamma, Head of Investment-MENA Equities at Franklin Templeton Investments Middle East told journalists at a round-table. “The valuations are unassuming, and the macro backdrop has improved and we have this liquidity event. So the market satisfies all three pre-requisites needed by investors,” Shamma said.

Addition of Aramco after the Initial Public Offering will lead to another $20-30 billion coming in the market. In all, Franklin Templeton expects the Mena region to have a meaningful representation on the MSCI emerging market index to 6.44 per cent from the current 1.35 per cent on the back of the Saudi’s inclusion in the index, the primary offering of Aramco along with Kuwait’s inclusion in the index.

This will compare with 3.3 per cent representation of Russia on the index, and 6.81 per cent of Brazil.

Franklin Templeton Investments expects $80 billion of GCC debt issuances, slightly lower than last year’s figure of $90 billion due to lower deficits.

The year of 2016 was the worst in terms of budget deficit for the GCC triggering unprecedented pace of reforms, resulting in dramatic response from the governments and thereby resulting in 43 per cent reduction in budget deficit.

“It is based on the fact that our oil price assumption are elevated to $55-75 per barrel, which means that deficits will be slightly low. Right we now we are on pace to issue more, but as the year comes to an end, we might issue around $80 billion,” Mohieddine Kronfol, chief investment officer global sukuk and Mena fixed income fund at Franklin Templeton Investments said.