Saudi Arabia’s stock market to get major boost from FTSE index inclusion

The Kingdom is to be included in a series of global indexes investors use to guide decisions on where to put billions of dollars’ worth of funds. (File photo: Reuters)
Updated 29 October 2017

Saudi Arabia’s stock market to get major boost from FTSE index inclusion

DUBAI: In a major boost to the Saudi Arabian stock market, the Kingdom is to be included in a series of global indexes investors use to guide decisions on where to put billions of dollars' worth of funds.
FTSE Russell, the index compiler owned by the London Stock Exchange, is to launch a series of stand-alone indices for Saudi markets and gave notice that the Kingdom’s markets would be classed as a “secondary emerging market” early next year.
The move is an endorsement by a respected international investment organization of the modernization program undertaken by the Saudi Capital Markets Authority and by the Tadawul, the Riyadh stock exchange.
Last week at the Future Investment Initiative conference in the Saudi capital, both organizations promised further modernization reforms and said they were confident they had the governance and the liquidity to exclusively stage the initial public offering (IPO) of Saudi Aramco, billed as the biggest IPO in history with a potential valuation of $100bn.
A statement from FTSE Russell said that it was to launch a series of “comprehensive Saudi Arabia Inclusion indexes,” including a stand-alone indexes for the country and “global and regional FTSE Saudi Arabia inclusion indexes.”
It also said that the Kingdom was “anticipated to meet the requirements for potential inclusion as a secondary emerging market from 2018.”
Investment indexes are an increasingly important tool for global institutions seeking to invest via exchange traded funds (ETFs) which track recognized markets. Exchanges that meet the FTSE Russell criteria can expect a significant injection of capital and a jump in volumes traded on their markets.
Khalid Al-Hussan, chief executive of the Tadawul, said: “We are firmly committed to the growth and development of the financial markets in Saudi Arabia and have undertaken wide-ranging reforms to enhance market access, transparency, governance and efficiency.
“We are pleased that FTSE Russell has launched this new dedicated Saudi Arabia index series alongside the global and regional Saudi inclusion indexes, which we believe represents further progress in our efforts to create an attractive investment climate for international and domestic investors,” he added.
Mark Makepeace, chief executive of FTSE Russell, said: ““FTSE Russell has strong relationships in the Middle East and we are delighted to launch the new stand-alone country indexes for the Saudi Arabian market. Alongside this, the Saudi Arabia inclusion indexes are a very positive step for the market and country as a whole and we will now begin work with institutional and market practitioners to prepare for the anticipated classification of Saudi Arabia as a secondary emerging market. We look forward to working with Tadawul to further develop the index series and create innovative index products for this market.”
FTSE Russell said that Saudi Arabia had taken a number of positive steps to increase the openness and effectiveness of its markets and, as a result of these reforms, it was anticipated that Saudi Arabia would meet the requirements for inclusion as a Secondary Emerging market from early 2018 following the implementation of further enhancements to the independent custody model.
Last week, Tadawul also announced it would allow foreigners to invest directly in the Nomu, the parallel secondary market on the Riyadh exchange.
Saudi Araba is also awaiting a decision on whether it will be included in the MSCI emerging markets index, possibly as early as next year.

OPEC sees small 2020 oil deficit even before latest supply cut

Updated 12 December 2019

OPEC sees small 2020 oil deficit even before latest supply cut

  • OPEC keeps its 2020 economic and oil demand growth forecasts steady and is more upbeat about the outlook

LONDON: OPEC on Wednesday pointed to a small deficit in the oil market next year due to restraint by Saudi Arabia even before the latest supply pact with other producers takes effect, suggesting a tighter market than previously thought.

In a monthly report, OPEC said demand for its crude will average 29.58 million barrels per day (bpd) next year. OPEC pumped less oil in November than the average 2020 requirement, having in previous months supplied more.

The report retreats further from OPEC’s initial projection of a 2020 supply glut as output from rival producers such as US shale has grown more slowly than expected. This will give a tailwind to efforts by OPEC and partners led by Russia to support the market next year.

OPEC kept its 2020 economic and oil demand growth forecasts steady and was more upbeat about the outlook.

“On the positive side, the global trade slowdown has likely bottomed out, and now the negative trend in industrial production seen in 2019 is expected to reverse in 2020,” the report said.

Oil prices were steady after the report’s release, trading near $64 a barrel, below the level some OPEC officials have said
they favor.

The Organization of the Petroleum Exporting Countries, Russia and other producers, a group known as OPEC+, have since Jan. 1 implemented a deal to cut output by 1.2 million bpd to support the market. At meetings last week, OPEC+ agreed to a further cut of 500,000 bpd from Jan. 1 2020.

The report showed OPEC production falling even before the new deal takes effect.

In November, OPEC output fell by 193,000 bpd to 29.55 million bpd, according to figures the group collects from secondary sources, as Saudi Arabia cut supply.

Saudi Arabia told OPEC it made an even bigger cut in supply of over 400,000 bpd last month. The Kingdom had boosted production in October after attacks on its oil facilities in September briefly more than halved output.

The November production rate suggests there would be a 2020 deficit of 30,000 bpd if OPEC kept pumping the same amount and other factors remained equal, less than the 70,000 bpd surplus implied in November’s report and an excess of over 500,000 bpd seen in July. OPEC and its partners have been limiting supply since 2017, helping to revive prices by clearing a glut that built up in 2014 to 2016. But higher prices have also boosted US shale and other rival supplies.

In the report, OPEC said non-OPEC supply will grow by 2.17 million bpd in 2020, unchanged from the previous forecast but 270,000 less than initially thought in July as shale has not grown as quickly as first thought.

“In 2020, non-OPEC supply is expected to see a continued slowdown in growth on the back of decreased investment and lower drilling activities in US tight oil,” OPEC said, using another term for shale.