Saudi Arabia’s addition to MSCI’s group of emerging markets starting in June 2019 is expected to lure $40 billion in foreign investment to country.
Franklin Templeton Investments is now seeking approval for a Saudi Arabia ETF, according to a filing with the SEC on Friday. This seems as a no brainer for ETF issuers as the only Saudi Arabia-focused fund on the market in the US, the iShares MSCI Saudi Arabia ETF (KSA), has already ballooned from around $14 million in January to $264 million this week. KSA is one of the fastest growing funds so far in 2018, and one of the best performing single country ETFsthis year, returning more than 20% YTD
The 20 countries promoted to MSCI emerging market status since 1994 had median return of 55% in the year prior to official inclusion.
Saudi Arabia’s index has a high reliance on both the financial and commodity sectors, both of which are cyclical in nature. However, given the ability to influence commodity prices, to a large extent, in one of these sectors, Saudi Arabia will see more capital inflows once added to the MSCI. Accordingly, the space and the ETF should see capital inflows over the short and long run.