Saudi Arabia’s stock exchange (Tadawul) is not certain that it can join international index compiler MSCI’s emerging markets index in 2017, the exchange’s acting chief executive was quoted as saying.
The kingdom opened its market to direct foreign investment in June last year. In November, the exchange’s chief executive at the time, Adel al-Ghamdi, told Reuters that he aimed for MSCI entry by mid-2017.
But Khalid al-Hussan, who took over on an acting basis in mid-November, told EconomicME magazine, a regional publication, that “there is still a level of uncertainty of when this could happen. There are multiple things to be considered, some of them within the control of the exchange, some of them outside.
“If you ask me, I wish for 2017. But whether this is going to happen or not, I don’t know,” he was quoted as saying.
Fund managers believe MSCI inclusion would draw billions of dollars of fresh money to the Saudi market. So far, foreigners have been lukewarm towards the bourse; they owned 4.58% of total market capitalisation at the end of January.
Al-Hussan said the exchange had been working closely with MSCI to assess obstacles to inclusion. One is that trades must be settled on the same day, a practice known as T+0; it means foreigners must have large amounts of money on hand before trading, which can be inconvenient given Riyadh’s time zone and its Sunday-Thursday business week. Many big emerging markets have settlement after two days.
“Clearly, it is the T+0 issue that MSCI clients are having with the Tadawul market. There might also be some issues with foreign investor ownership limits,” al-Hussan was quoted as saying.
He added that he did not think the kingdom could move away from T+0 by 2017, and it was unclear whether MSCI would admit Saudi Arabia merely on the basis of a commitment to make the reform.
“If you change the T+0 environment, this takes us beyond 2017. If the Saudi Capital Market Authority decides to change the settlement cycle, the change will take effect, let’s say, in 2018,” he said.