Global index provider MSCI said on Tuesday it had signed an agreement with the Saudi Stock Exchange Co (Tadawul) to jointly launch a tradeable index later this year in a move that could spur the growth of derivatives and exchange-traded funds. Tadawul said in a separate statement it would introduce exchange-traded derivatives in the first half of 2019.
The moves come after MSCI classified Saudi Arabian equity market as an emerging market in June, which is expected to attract billions of dollars of passive funds. The Saudi index is up 10 percent so far this year, but has eased this quarter on profit taking after a strong run ahead of the MSCI review when foreign fund flows accelerated.
MSCI said the index would be based on the broader MSCI Saudi Arabia index series, part of the MSCI Emerging Markets Index. The joint tradeable index will be available in the fourth quarter of 2018. "Saudi Arabia has undergone a remarkably rapid period of change in the past few years," said Henry Fernandez, chairman and chief Executive Officer of MSCI.
"This joint index is possible as a result of the kingdom's adoption of international standards and desire to create additional investment opportunities for domestic and international investors." Khalid al-Hussan, chief executive officer of Tadawul, said the creation of the index provided a strong foundation for the development of index futures and other exchange-traded products.
He said the introduction of derivatives in 2019 was part of Saudi Arabia's Vision 2030 Financial Sector Development Program. "This reflects Tadawul's ongoing commitment to create new opportunities for investors and to increase institutional investors' participation in the Saudi market," Hussan said.
Saudi Arabia has launched a string of market reforms since 2015, when the Riyadh exchange opened itself to direct investment by foreign institutions and began easing restrictions on foreign ownership of companies. The reforms have encouraged international firms such as BlackRock, Citigroup, HSBC and Ashmore to invest directly in the market.
However Saudi authorities' plan to sell a 5 percent stake national oil giant Saudi Aramco has been shelved because of valuation and regulatory concerns, sources told Reuters this month.