Saudi Share Trading Set to Jump on MSCI as Trade Woes Dominate
Riyadh Share Trades Set to Surge Again as MSCI Completes Upgrade
(Bloomberg) -- It’s set to be a busy week for Saudi stocks, with volumes likely to surge as index compiler MSCI Inc. completes the country’s promotion to an emerging market just as trade tensions dominate investor sentiment.
Saudi Arabia’s weighting on the New York-based company’s MSCI Emerging Markets Index will increase to 2.83% from 1.45%, based on Aug. 27 closing prices, the compiler said in a statement earlier this month. When the first part of the upgrade took place in May, share trading in the country leapt to almost $8 billion in a single day, the most in almost 13 years.
The heightened interest expected for Tuesday would be driven mostly by foreign investors who passively track MSCI indexes. Their purchases from abroad have helped the index in Riyadh outperform equities markets in developing markets this year.
The funds arrive at a time of escalating tensions stemming from trade disputes between the U.S. and China. They could help the index recover from a 2.3% drop this week amid speculation that slowing global growth will sap demand for oil, the country’s biggest export.
Inflows to the Saudi market this week could exceed $6 billion, according to estimates by Mohamad Al Hajj, an equities strategist at EFG-Hermes Holding in Dubai. That’s more than 11 times the average weekly net purchases by foreigners this year.
Still, some investors expect that the stronger volumes are unlikely to be sustained, given that Saudi Arabian shares trade at relatively expensive levels against a backdrop of a weak economy and escalating geopolitical tensions.
EFG-Hermes’s Al Hajj closed an overweight call on Saudi shares in July, saying a strategy built around the MSCI index inclusion had run its course, and also citing weak fundamentals for the chemical sector and lower earnings prospects for banks.
To contact the reporter on this story: Filipe Pacheco in Dubai at fpacheco4@bloomberg.net
To contact the editors responsible for this story: Blaise Robinson at brobinson58@bloomberg.net, John Viljoen, Eddie van der Walt
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