Gulf may have weak bias before MSCI, Brexit decisions

June 14, 2016 10:14 am

An investor monitors a screen displaying stock information at the Saudi Stock Exchange (Tadawul) in Riyadh, Saudi Arabia. (Image: Reuters)

Stock markets in the Gulf may trade with a weak bias before MSCI’s decision on Tuesday evening on whether it will consider Saudi Arabia for inclusion in its emerging markets index, and before Britain’s June 23 decision on whether to leave the European Union.


Brent crude oil futures have slipped below $50 a barrel, dropping for a fourth successive day, while MSCI’s broadest index of Asia-Pacific shares outside Japan is down 0.6 percent.


Late on Monday, Saudi Arabia’s cabinet approved a 2.5 percent annual tax on the value of undeveloped land designated for residential or commercial use and rules allowing foreign investors to own 100 percent of retail and wholesale businesses. Both approvals were expected.


“Telling foreign businesses that they can fully own their business in a country with 30 million people, who still have relatively strong purchasing power, is a big win and could potentially see millions of dollars of capital inflow,” said a chief investment officer of a Saudi conglomerate.


But the liberalisation, if foreign companies take advantage of it, could also mean more compeition for local companies.


“Retail companies, especially those in electronics and apparel, might face some serious competition, eroding some of their top-line growth opportunities,” said a Jeddah-based equity analyst.


International index compiler MSCI is to announce after the close on Tuesday whether it will put Saudi Arabia on review for possible inclusion in its emerging markets index as early as mid-2017.


Inclusion would bring billions of dollars of passive foreign funds into the market but fund managers are split on whether Saudi Arabia is likely to be put on review this year.


Some managers believe the possibility is high because of an easing of foreign ownership restrictions and reforms to the trading environment announced in early May by the regulatory body, while others believe inclusion will not become before mid-2018.


MSCI emerging index components in the United Arab Emirates, Qatar and Egypt may be soft ahead of MSCI’s decision on Tuesday on whether to include China A-shares in the index, which would dilute the weightings of other stocks.


Mohamed el-Jamal, head of capital markets at Abu Dhabi’s Waha Capital, said he was expecting about $100 million of outflows from the UAE, Qatar and Egypt if China A-share inclusion went ahead.


By Reuters
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