Saudi Arabia to join FTSE Russell index from March 2019

Saudi Crown Prince Mohammed bin Salman at a coffee shop with businessman and former New York city mayor Michael Bloomberg on Wednesday.
Updated 29 March 2018
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Saudi Arabia to join FTSE Russell index from March 2019

RIYADH: The Saudi Arabian stock market will join FTSE Russell’s emerging market index starting in March next year, the company said on Wednesday, a move expected to draw billions of dollars of fresh foreign portfolio investment to the kingdom.
Many equity funds around the world benchmark themselves against the index, and they will need to buy Saudi stocks when the change takes effect. With a capitalization of about $500 billion, Saudi Arabia is the Arab world’s largest equity market.
The decision is a boost to reforms launched by Crown Prince Mohammed bin Salman, who wants foreign investment to create jobs and diversify the economy, which has been hit hard by low oil prices, beyond energy exports.
To prevent Saudi Arabia’s large size from destabilizing other markets as funds shift money to Riyadh, the Kingdom will enter the index in several stages starting in March 2019 and ending in December 2019, FTSE said.
The Kingdom is projected to have a weight of 2.7 percent in the index, which could rise to about 4.6 percent because of the government’s proposed public offer of 5 percent of the shares of state oil giant Saudi Aramco, FTSE added.
Saudi authorities worked for years to meet criteria to enter the index, tightening rules on corporate governance, modernizing the market’s settlement system and easing — though not completely removing — restrictions on foreign ownership of stocks.
Regional investment bank EFG Hermes has estimated Saudi Arabia will attract about $5 billion of “passive,” index-linked funds because of FTSE’s decision.
In addition, rival index firm MSCI will decide in June whether to include Saudi Arabia in its own emerging market benchmark. A positive decision, which many fund managers expect, could produce around $10 billion of passive inflows.

Such numbers may only be the tip of the iceberg; a lot more new money could come from “active” funds, which have more discretion to move between countries.
All told, Saudi Arabia could see a total of $30 billion to $45 billion of inflows in the next two years if it reaches the foreign ownership levels of markets in the neighboring United Arab Emirates and Qatar, EFG Hermes thinks. Reaching the levels of Mexico and Russia would mean $90 billion of inflows.
“Saudi inclusion is a milestone event in the development of the region’s equity capital markets,” said Salah Shamma, head of regional equity investment at Franklin Templeton Investments, which manages some $745 billion of assets globally.
“It opens up the region to a dedicated investment pool otherwise unavailable.” Shamma added that the Saudi banking, insurance, health care, education and consumer staples sectors were potentially attractive.
Reforms may create new investment opportunities. A ban on women driving is to be lifted in a few months, which should aid auto-related sectors, and the Kingdom plans to develop non-religious tourism for the first time.

Aramco
By increasing the presence of foreign portfolio investors in Saudi Arabia, entry into the FTSE and MSCI indexes may facilitate authorities’ plan to list shares in Aramco and reinvest the proceeds in new industries.
The government says it aims to sell about 5 percent of Aramco as soon as this year, listing it in Riyadh and possibly one or more foreign markets in what would probably be the world’s biggest IPO.
Crown Prince Mohammed bin Salman has predicted the sale will raise at least $100 billion. Many private analysts consider that too optimistic, but Riyadh’s market is still likely to need the participation of foreign investors to help absorb the huge IPO.
At present, foreign investors of all types own less 5 percent of Saudi Arabia’s market. Expectations for this ratio to rise have lifted the Saudi stock index over 9 percent this year.
Exchange data show foreigners have already begun buying more stocks, purchasing a net $1.64 billion year-to-date.
It is not clear, however, whether the market’s uptrend will continue in the coming months. The Saudi economy is still struggling with low oil prices, and at a valuation of over 16 times last year’s earnings, the market is not cheap compared to MSCI’s emerging market index at about 15.5 times.
Riyad Capital, a major Saudi investment bank, said in a report this week that the index had now hit its target for 2018 and while a further rise was possible, it might need triggers such as improvement in the corporate earnings outlook.
“We ... would avoid jumping on the speculative bandwagon,” it said. 


‘Don’t be too optimistic’: Huawei employees fret at US ban

Updated 26 May 2019
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‘Don’t be too optimistic’: Huawei employees fret at US ban

  • This week Google, whose Android operating system powers most of the world’s smartphones, said it would cut ties with Huawei
  • Another critical partner, ARM Holdings, said it was complying with the US restrictions

BEIJING: While Huawei’s founder brushes aside a US ban against his company, the telecom giant’s employees have been less sanguine, confessing fears for their future in online chat rooms.
Huawei CEO Ren Zhengfei declared this week the company has a hoard of microchips and the ability to make its own in order to withstand a potentially crippling US ban on using American components and software in its products.
“If you really want to know what’s going on with us, you can visit our Xinsheng Community,” Ren told Chinese media, alluding to Huawei’s internal forum partially open to viewers outside the company.
But a peek into Xinsheng shows his words have not reassured everyone within the Shenzhen-based company.
“During difficult times, what should we do as individuals?” posted an employee under the handle Xiao Feng on Thursday.
“At home reduce your debts and maintain enough cash,” Xiao Feng wrote.
“Make a plan for your financial assets and don’t be overly optimistic about your remuneration and income.”
This week Google, whose Android operating system powers most of the world’s smartphones, said it would cut ties with Huawei as a result of the ban.
Another critical partner, ARM Holdings — a British designer of semiconductors owned by Japanese group Softbank — said it was complying with the US restrictions.
“On its own Huawei can’t resolve this problem, we need to seek support from government policy,” one unnamed employee wrote last week, in a post that received dozens of likes and replies.
The employee outlined a plan for China to block off its smartphone market from all American components much in the same way Beijing fostered its Internet tech giants behind a “Great Firewall” that keeps out Google, Facebook, Twitter and dozens of other foreign companies.
“Our domestic market is big enough, we can use this opportunity to build up domestic suppliers and our ecosystem,” the employee wrote.
For his part, Ren advocated the opposite response in his interview with Chinese media.
“We should not promote populism; populism is detrimental to the country,” he said, noting that his family uses Apple products.
Other employees strategized ways to circumvent the US ban.
One advocated turning to Alibaba’s e-commerce platform Taobao to buy the needed components. Another dangled the prospect of setting up dozens of new companies to make purchases from US suppliers.
Many denounced the US and proposed China ban McDonald’s, Coca-Cola and all-American movies and TV shows.
“First time posting under my real name: we must do our jobs well, advance and retreat with our company,” said an employee named Xu Jin.
The tech ban caps months of US effort to isolate Huawei, whose equipment Washington fears could be used as a Trojan horse by Chinese intelligence services.
Still, last week Trump indicated he was willing to include a fix for Huawei in a trade deal that the two economic giants have struggled to seal and US officials issued a 90-day reprieve on the ban.
In Xinsheng, an employee with the handle Youxin lamented: “I want to advance and retreat alongside the company, but then my boss told me to pack up and go,” followed by two sad-face emoticons.