Markets

Saudi Arabia's stock exchange makes its debut on global emerging markets indexes

Key Points
  • Saudi Arabia's stock exchange, the Tadawul, took its first step Monday of inclusion in two major international indexes: the FTSE Russell and S&P Dow Jones' emerging markets indices.
  • The inclusion marks a continuation of efforts by the Saudi kingdom to open up its market to international investors, Tadawul CEO Khalid Abdullah al-Hussan told CNBC on Monday.
  • Al-Hussan expects this inclusion to bring in around $15 billion in passive inflows across the indices.
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Expecting $15 billion of passive inflow from new Saudi indices, Tadawul CEO says

Saudi Arabia's stock exchange, the Tadawul, took its first step Monday of inclusion in two major international indexes: the FTSE Russell and S&P Dow Jones' emerging markets indices.

The inclusion marks a continuation of efforts by the Saudi kingdom to open up its market to international investors, Tadawul CEO Khalid Abdullah al-Hussan told CNBC's Hadley Gamble in Riyadh.

"We haven't seen any turbulence on inflows of cash for the first tranche of FTSE and it was very smooth by both the sellers and as well as the buyers, which in my opinion confirmed the confidence of international investors to participate in the Saudi markets and the regulatory framework of the Saudi capital market," al-Hussan said.

Al-Hussan expects this inclusion to bring in around $15 billion in passive inflows across the indices, adding that calculating the expected active funds is more challenging.

The Saudi Stock Exchange, also known as the Tadawul All Share Index, in Riyadh, Saudi Arabia
Simon Dawson/Bloomberg/Getty Images

Inclusion in the FTSE Russell Emerging Markets index will take place in five tranches over the next 12 months, while that of the S&P Dow Jones Emerging Markets indices will be completed with a second phase in September of this year. Monday's initial tranche of 25 percent "will be split over March 2019 and April 2019 (10% and 15% respectively) to ensure a smooth transition," according to a Tadawul press release.

Capital markets reforms and economic liberalization have been core tenets of Saudi Arabia's Vision 2030, which aims to spur greater foreign investment to diversify its economy away from its reliance on hydrocarbon revenues and grow private-sector jobs.

Aramco IPO and finding 'the right time'

Al-Hussan commented on the long-awaited public offering of Saudi state oil giant Aramco, emphasizing the importance of timing and effective due diligence.

The commitment to go public, he said, requires "doing all of the analysis and the due diligence works to be ready to go public. I think this is the most important decision. The timing is what works well for the market as well as the issuers... Every single issuer is always concerned about what is the right time."

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Saudi market is transparent, Tadawul CEO says

The Aramco IPO, which has been delayed since 2018, would be the largest public offering in history if listed. Saudi officials now say the listing will go ahead in 2021.

"I would refer that to our own IPO — we're always looking at this very strategically," the CEO continued. "What is the right time to go public for the company, the market the investors the current shareholders all of these are factors to be considered."

The Tadawul was roughly flat on Monday at 1:00 p.m. in Riyadh, and is up 9.4 percent since the start of this year.