Saudi Arabian stocks closed higher on Tuesday as investors bought ahead of the addition of more Saudi stocks to the MSCI emerging markets index, while the United Arab Emirates and Qatar markets also gained.
Saudi's benchmark index closed up 0.3% after spending most of the day in the red. Samba Financial Group rose 3.6% and Saudi Basic Industries advanced 1.8%.
A second batch of Saudi shares will be added to the MSCI emerging markets index on Wednesday after the country's stocks were first included in the index in May.
The inclusion of Saudi stocks in the MSCI, and FTSE, indexes has attracted billions of dollars from foreign investors, who have been net buyers every month this year, sending the Saudi index up nearly 20% at its peak in May.
Three of an eventual five tranches of Saudi stocks have been added to the FTSE emerging-market index this year.
However, since May regional geopolitical tensions and global trade tensions have reduced the Saudi index's year-to-date gains to 4.7%.
Weighing on the index on Tuesday were Al Rajhi Bank and Saudi Telecom (STC), which closed 1.2% and 2.1% lower, respectively, as passive funds have already bought those shares in line with Saudi Arabia's inclusion in the MSCI index.
"As expected, large caps in Saudi such as STC and Rajhi are being sold, as we reckon the passive trackers have already secured the required supply," said Vrajesh Bhandari, senior portfolio manager at Al Mal Capital.
The Abu Dhabi index rose 2.7%, adding to the previous session's gains when it broke a three-day losing streak.
First Abu Dhabi Bank, the United Arab Emirates' largest lender, jumped 3.2% contributing the most to the index rise. Emirates Telecom gained 2.5%.
Qatar's index rose 2.5% in its biggest single-day gain since May as 18 of its 20 stocks climbed, narrowing down its year-to-date loss to 4.5%.
The Gulf's largest lender Qatar National Bank and blue-chip petrochemical maker Industries Qatar surged 3% and 3.4% respectively.
"MENA dedicated money is being rotated out of Saudi into UAE and we suspect also in Qatar since it has lagged in year to date terms," added Bhandari.
He expected these trends to continue for the next one or two weeks and investors would then need to be more selective in their approach.
In Dubai, the index was up 0.8% with all its property shares trading higher and blue-chip developer Emaar Properties gaining 2.1%. Egypt's blue-chip index traded roughly flat with Egyptian Resorts shedding 5.3%.
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