Dubai
The decision by index compiler MSCI to include Saudi Arabia in its Emerging Markets (EM) index is expected to attract around $45 billion to the Kingdom’s markets, according to UBS.
Reports from the Swiss investment bank’s global wealth management unit said that $10 billion of those funds will come from passive investments while the other $35 billion will be from active investments.
Rival index provider FTSE’s recent inclusion of Saudi Arabia in its own EM index earlier this year is estimated to add another $5 billion of inflows, UBS said. This increases the chances of further near-term outperformance for the country.
The figures support reports from the Saudi Capital Market Authority (CMA) that said in late June that the MSCI EM inclusion could attract around $40 billion from international funds. CMA said around $10 billion of those would come from passive funds.
In its note, UBS Global Wealth Management’s Chief Investment Office also pointed out some long-term risks for investors in Saudi. The bank said that despite efforts to diversify the Saudi economy away from oil, energy still accounts for three-quarters of the country’s exports, and contributes two-third of its fiscal revenues.
UBS said that if oil prices were to weaken, that could affect Saudi’s fiscal balance. It also highlighted geopolitical tensions in the region as another risk.
