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MENA Equity Strategy Saudi opens the door to billions of inflows
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    <strong>Artículo publicado en <a href="http://www.lacartadelbolsa.com">La Carta de la Bolsa</a> el Jueves, 24 de Julio en la sección: Articulos</strong>
    <h3 class="titulo_articulo">MENA Equity Strategy  Saudi opens the door to billions of inflows</h3>
    Redacción
    <p>
	<strong>Opening up access to foreign investors puts MENA on the map </strong>Today’s announcement that the Saudi cabinet has approved plans to open up its stock market to foreign financial institutions in H1 2015 is a long-awaited step towards MSCI EM index inclusion. Coming just over a month after the UAE and Qatar’s upgrade to EM status, the latest decision could eventually lead to the MENA region becoming as large as 5.2% (with Saudi accounting for 4%) of the benchmark compared with just 1.2% at present. MSCI could start evaluating the current proposals in June 2015, conclude the process by June 2016 and implement EM inclusion by June 2017.</p>
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	<strong>MSCI EM inclusion could mean $13.3b-26.6b of net inflows</strong></p>
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	MSCI currently recognises Saudi via a domestic index with 45 constituents and</p>
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	$183b of free float market cap (43 stocks can currently be traded by foreign</p>
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	investors via swaps). With all but one stock having both a free float market cap</p>
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	above $1b and trading more than $1m per day, there is ample scope for this index</p>
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	to qualify for EM status (N.B.: it would be unprecedented to move directly to EM</p>
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	from standalone status). We estimate that depending on the number of stocks</p>
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	qualifying for EM inclusion, potential passive and active inflows could total anywhere</p>
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	between $13.3b-26.6b. The MSCI Saudi index constituents currently trade $1b/day.</p>
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	<strong>Saudi</strong><strong>’</strong><strong>s macro fundamentals already in the big league</strong></p>
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	The opening of the Tadawul to foreign investors also confirms the authorities’ focus</p>
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	on economic diversification and steady economic reforms, particularly in the</p>
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	housing and labor markets, in our view. Macroeconomic fundamentals remain</p>
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	robust. Consumer and business confidence could be boosted by positive</p>
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	perceptions of the market opening. Increased foreign institutional investment is</p>
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	likely to help improve corporate governance, widen the pool of available savings</p>
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	and boost Fx reserves accumulation. The economy has weathered reasonably well</p>
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	the impact of the labour market reforms and we see growth hovering around 4%.</p>
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	<strong>Overweight Saudi on macro drivers, positioning & valuations</strong></p>
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	We have maintained an Overweight stance in Saudi for many years and currently</p>
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	prefer this market to both the UAE and Qatar (where we are Neutral). Saudi’s</p>
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	market benefits from positive macro catalysts accelerating domestic oil production,</p>
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	improving Chinese activity data and slowing domestic inflation. Valuations are not</p>
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	looking stretched, trading at a consensus 2014 P/E of 14.6x with 14% earnings</p>
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	growth, in-line with its long-run average premium to EM.</p>
<p>
	<strong>Top Saudi picks: Samba, SABIC, SIIG and Yansab</strong></p>
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	Our fundamental analysts prefer stocks with exposure to earnings growth potential</p>
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	(Samba, SIIG) and attractive cash usage (SABIC, Yansab) and also believe</p>
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	investors will revisit the consumer and retail sector ahead of improving labour</p>
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	market trends.</p>
<p>
	<strong><a href="https://research1.ml.com/C?q=h7Ztfsl4i6ZXTiaf5qsQYQ&e=alexandra.fletcher%40baml.com&h=6refmg" target="_blank">Click here for full report*</a>  </strong></p>
<p>
	<strong>Please see full report for further details...</strong></p>

    
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