The oil-rich Kingdom of Saudi Arabia has not historically been reliant on international investment to bolster its economy. However, when oil prices experienced a sustained low in 2015, Saudi Arabia's fiscal deficit reached an all-time high.1 In response, the Kingdom announced a national transformation plan called "Vision 2030," which outlines a path to boost and diversify the Saudi Arabian economy and place its stock market more in line with international standards. FTSE Russell has been monitoring the Kingdom's progress and is developing index solutions to address these changes.
The petroleum sector accounts for 42% of Saudi Arabia's GDP and 90% of its export earnings.2 It is the world's second largest oil producer, and the world's largest oil exporter.3, 4 Vision 2030 was introduced with the objectives of modernizing and diversifying the Saudi Arabian economy away from oil revenue, attracting foreign investors and privatizing government services.
Much of the Kingdom's ability to succeed in diversifying its oil export-dependent economy relies heavily on its ability to attract foreign capital. It was not until June of 2015, that Qualified Foreign Investors (QFIs) could directly invest in the Saudi Arabian stock market ("Tadawul"), albeit with strict guidelines. In 2016, the QFI regulations were loosened, improving accessibility to foreign investors.
As a result of this series of economic reforms, it was announced in September 2015 that Saudi Arabia had been placed on FTSE Russell's Watch List for inclusion in its global indexes (FTSE GEIS) as a Secondary Emerging market. If and when Saudi Arabia is included as a Secondary Emerging market, FTSE Russell provides a minimum of six months notice before the country will be reflected in its indexes. For those interested in monitoring the potential effect of this change in the interim, FTSE Russell has created the FTSE Saudi Arabia Inclusion Index Series.
The FTSE Saudi Arabia Inclusion Index Series contains country-level, regional and global indexes each combining the constituents of the FTSE Saudi Arabia Indexes with various FTSE indexes. The Gulf Cooperation Council ("GCC") regional indexes below show that the inclusion of the relatively large Saudi Arabian economy could have a significant impact on the allocations of the other countries in the index.
On a larger scale, in the FTSE Emerging Saudi Arabia Inclusion Index, Saudi Arabia ranks tenth in size out of the 24 constituent countries with a weight of 2.6% as of August 31, 2017.
The FTSE Saudi Arabia Inclusion Index Series is, therefore, designed to help market participants prepare for the country's potential inclusion as a Secondary Emerging market in the FTSE GEIS indexes and the impact this would have on emerging market allocations. As the Kingdom moves towards creating a more globally accessible market, indeed, this index series might be the keys to this kingdom.
For further detail, please see the FTSE Saudi Arabia Inclusion Index Series paper.
- The World Factbook
- Russia Overtakes Saudi Arabia as World's Top Crude Oil Producers
- The World Factbook/rankorder
- Weights are allowed to drift above 40% intra-rebalance.
© 2017 London Stock Exchange Group plc and its applicable group undertakings (the "LSE Group"). The LSE Group includes (1) FTSE International Limited ("FTSE"), (2) Frank Russell Company ("Russell"), (3) FTSE TMX Global Debt Capital Markets Inc. and FTSE TMX Global Debt Capital Markets Limited (together, "FTSE TMX") and (4) MTSNext Limited ("MTSNext"). All rights reserved.
FTSE Russell® is a trading name of FTSE, Russell, FTSE TMX and MTS Next Limited. "FTSE®", "Russell®", "FTSE Russell®" "MTS®", "FTSE TMX®", "FTSE4Good®" and "ICB®" and all other trademarks and service marks used herein (whether registered or unregistered) are trade marks and/or service marks owned or licensed by the applicable member of the LSE Group or their respective licensors and are owned, or used under licence, by FTSE, Russell, MTSNext, or FTSE TMX.
All information is provided for information purposes only. Every effort is made to ensure that all information given in this publication is accurate, but no responsibility or liability can be accepted by any member of the LSE Group nor their respective directors, officers, employees, partners or licensors for any errors or for any loss from use of this publication or any of the information or data contained herein.
No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the FTSE Russell indexes or the fitness or suitability of the indexes for any particular purpose to which they might be put.
No member of the LSE Group nor their respective directors, officers, employees, partners or licensors provide investment advice and nothing in this communication should be taken as constituting financial or investment advice. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any representation regarding the advisability of investing in any asset. A decision to invest in any such asset should not be made in reliance on any information herein. Indexes cannot be invested in directly. Inclusion of an asset in an index is not a recommendation to buy, sell or hold that asset. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.
No part of this information may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of the applicable member of the LSE Group. Use and distribution of the LSE Group index data and the use of their data to create financial products require a licence from FTSE, Russell, FTSE TMX, MTSNext and/or their respective licensors.
Past performance is no guarantee of future results. Charts and graphs are provided for illustrative purposes only. Index returns shown may not represent the results of the actual trading of investable assets. Certain returns shown may reflect back-tested performance. All performance presented prior to the index inception date is back-tested performance. Back-tested performance is not actual performance, but is hypothetical. The back-test calculations are based on the same methodology that was in effect when the index was officially launched. However, back-tested data may reflect the application of the index methodology with the benefit of hindsight, and the historic calculations of an index may change from month to month based on revisions to the underlying economic data used in the calculation of the index.