Riyadh — Saudi Arabia’s inclusion in major emerging markets stock indices from Monday is likely to suck in around $20 billion in passive inflows.

Saudi Arabia will be the biggest recent addition to the global indices, the largest of which is the MSCI Emerging Markets Index, which it joins from May. MSCI will give the Kingdom a weight of 2.7 percent, between Russia and Mexico.

Saudi stocks were trading 0.2 percent higher on Sunday, a day ahead of the exchange’s inclusion in the FTSE Russell’s emerging market index.

The process expected to bring in about $20 billion of combined passive inflows during 2019, analysts estimate. That would push up foreign ownership from around 2 percent to around 6 percent, according to Al Mal Capital.

“The 2.7 percent pro-forma benchmark weight [within the MSCI index] is much more significant than prior index inclusions during the past decade,” said Alexander Redman, head of global emerging market equity strategy at Credit Suisse.

“And given that the proportion of assets under management within emerging markets passive funds is much larger than during previous index inclusions, it means there will be a significant amount of net foreign buying of Saudi equities.”

Foreign net buying has picked up since the start of the year, hitting $2.1 billion year-to-date.

“We can reasonably expect between SR90 billion to SR100 billion ($24-$27 billion) inflows,” said Muhammad Faisal Potrik, head of research at Riyad Capital.

He said traded value is also expected to rise 14 percent to $100 million a day in the wake of Saudi’s inclusion in key benchmark indices.

The Saudi index has gained 9.8 percent so far this year, outperforming major Gulf markets.

Foreign investors have been net buyers of Saudi stocks every week this year, positioning for passive fund inflows after its inclusion in the FTSE Russell index on March 18 and MSCI in late May. — Reuters