Saudi Arabia opens a $531 billion stock market to the West (Part 2 of 2)
This could spark social changes for Saudi Arabia, which has an abysmal record regarding issues like women’s rights. In the 2013 Gender Gap Report, published by the World Economic Forum, Saudi Arabia ranked 127 out of 136 countries studied. By comparison, the U.S. is ranked 23rd. The countries that rank lower than Saudi Arabia include Syria, Chad, Pakistan, Yemen, and Iran – not exactly good company to be in if when attempting to attract foreign investment. Foreign capital may be just what Saudi Arabia needs to become a freer, more just, and more tolerant nation. While this may be considered a long-shot, there is precedent. Recall that China (now ranked 69th on that list) was thought of in much of the same light before it opened its economy to the West. The same is true for some South American nations (EWZ) in their pre-democracy days. Might this be Saudi Arabia’s moment to show the world it can change? We hope so, as we are optimistic in the power of capitalism to improve societies.
Market Realist – According to an announcement from the Saudi government, the country’s stock exchange will likely open to investors in the first half of next year. The Tadawul, Saudi Arabia’s stock market, has a market capitalization of a strong $530 billion, making it the largest in any Arab country.
The Capital Market Authority should draft regulations in August, which will then be open for public consultations for 90 days and would be brought in to effect after. Upon approval, Saudi Arabia could potentially represent a 4% to 5% weighting in the MSCI Emerging Markets Index (EEM). Currently, China (FXI) has the most weight in the index, followed by South Korea, Taiwan, and Brazil (EWZ).
The chart above shows the present weights for nations in the emerging market index (VWO). The Tadawul has been going strong this year and has posted year-to-date returns of 15%.
Read our series An investor’s must-know guide to emerging market equities to learn about emerging markets as an asset class.
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