Riyadh – Mubasher: S&P Dow Jones Indices (S&P DJI) is currently considering changing Saudi Arabia’s classification to mirror the progress and reforms executed by the Gulf country, which include foreign accessibility and alignment with global standards.
The review would change the Kingdom’s status as a stand-alone country within S&P DJI’s global benchmark indices to an emerging market (EM).
The announcement comes as S&P DJI conducts a consultation with members of the investment community regarding the potential changes to Saudi Arabia’s rating within the indices, S&P DJI said in a statement released late Wednesday.
“Saudi Arabia has been under consideration for inclusion in S&P DJI global benchmark indices for several years due to its market size and liquidity, its regional economic importance, and the progress that has been made to improve accessibility to foreign investors,” S&P DJI stated.
The Kingdom’s status was unchanged in last year’s consultation by S&P DJI as concerns over the Qualified Foreign Investor (QFI) programme and custodial requirements posing challenges to foreign investors had lingered.
But since then, Saudi Arabia has implemented changes that appear to have prompted a re-review by S&P DJI.
Over the course of the year, Saudi Arabia through the Saudi Stock Exchange (Tadawul) and the Capital Market Authority (CMA) have launched a bundle of changes and market regulations aimed at increasing and facilitating foreign investment in the financial market.
The minimum assets under management for QFI have been reduced to $500 million, while individual foreign ownership limit for QFI has been hiked to 10%, S&P DJI noted under the implemented enhancements.
The Kingdom also made improvements to its independent custody regulations as well as to accounting required by IFRS standards.
Saudi Arabia’s expected implementation of a reliable price auction process is slated for the second half of 2018, while it is expected that it will announce plans for a central counterparty clearinghouse (CCP) forecast to be fully operational by the second half of 2019, according to the S&P DJI statement.
The above-mentioned reforms are expected to support the Kingdom’s continuing trend of market liberalisation, foreign investor accessibility, and alignment with global standards. Moreover, Saudi Aramco’s highly-anticipated initial public offering (IPO) has drawn significant foreign investor interest.
“All of these developments reinforce the need to appropriately reflect the status of Saudi Arabia in global investment portfolios. S&P DJI is gathering feedback from the investment community to determine the most suitable plan for inclusion of Saudi Arabia in our global benchmark indices,” S&P DJI highlighted.
The Saudi Kingdom is currently a stand-alone country within S&P DJI’s global benchmark indices. However, following the review, the country may be changed to an emerging market.
The integration could happen at one time, or using a phased approach, the ratings agency added.
