Tadawul set to gain from strong QFI inflows, says Jadwa

Capital inflows from qualified foreign investors (QFIs) and SWAP agreements are expected to remain “strong” in the short term following Tadawul’s inclusion into FTSE Russell emerging market (EM) index, Jadwa Investment said in a new report.

“We see the inclusion of Tadawul into FTSE EM and the prospective inclusion into MSCI EM as the short-term drivers of the record inflows,” the research firm said.

Certain QFIs, such as hedge funds, are taking up favorable positions to take advantage of the anticipated flows once MSCI EM inclusion is announced in June 2018, but implemented, along with FTSE EM, during 2019, it added.

The news of inclusion into FTSE EM has already encouraged record buying on Tadawul, with net purchases of SWAPs and QFIs totaling SAR 7.9 billion during Q1 2018.

As per FTSE Russell, an estimated $200 billion of passive assets is currently tracking the FTSE EM index, which means Saudi Arabia’s stock exchange can attract $5 billion in passive investments in December 2019.

Jadwa said the inclusion of Tadawul into FTSE EM index would benefit not only capital markets, but the wider economy as well.

Despite a number of potentially disruptive economic reforms coming into effect this year, such as energy price rises, value-added tax (VAT), and expat levies, the consultancy sees the increased inflow as a vote of confidence in the direction of macroeconomic policy.

“More to the point, it seems that international investors have been convinced of the initiatives that support the overarching goals of the Vision 2030, both under the 2018 fiscal budget and as laid out by the revised Fiscal Balance Program,” it noted.

The Tadawul All Share Index (TASI) has risen by around 8 percent since the beginning of 2018 and is currently trading at levels last seen back in August 2015, supported by high oil prices and investor confidence, the report said.