"Saudi's upgrade is likely to bolster stock prices, and provide the trigger for a wider catch-up rally by regional exchanges", said Salah Shamma, head of investment, Middle East and North Africa at Franklin Templeton Emerging Markets Equity.
The nation was added to a watch list for a potential upgrade past year, and will now join nations including China, India, Turkey, South Africa and Brazil. MSCI denied Argentina the promotion past year.
If the decision takes place as expected, Saudi Arabia, with 32 stocks, will become the third-largest MSCI country from Europe, Africa or the Middle East, behind only South Africa and Russian Federation. It added that the inclusion of some domestic Chinese shares in its emerging markets index this year is going smoothly so far, according to its clients.
Khalid Al-Hussan, chief executive officer of Tadawul, told a press conference in Riyadh that he was "more excited by what's about to come as we continue to enhance the market's future". Foreign investors sold 215.9 billion won (US$193.46 million) worth of stocks on the KOSPI market on the same day, going on a net selling spree for six days in a row. "From this year, stronger United States dollar and rising USA rates could continue to attract buyers, especially for Saudi banks", he said.
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FTSE Russell upgraded the country to emerging markets status in March.
"The IPO of Saudi Aramco could also potentially add another $50 billion of inflows into the market". Since then, it eased requirements for these investors with measures such as lowering the minimum amount of assets under management to get QFI status and aligned trade settlement times with global standards.
For the Gulf's largest bourse, potential combined inflows into a market with a capitalisation of 1.95 trillion riyals (394.9 billion pounds) will need to be carefully managed.
Saudi Arabia has been gradually opening up to foreign investments as it seeks to reduce their reliance on- one of its main sources of revenues.
Saudi Arabia has been upgraded by index provider MSCI to sit in its Emerging Market index for the first time, following its semi-annual review, while Argentina also re-enters the index after being downgraded in 2009. Foreigners were net buyers of Saudi stocks in nearly every week this year, with net inflows of about 11.4 billion riyals ($3 billion) as of June 7 on aggregate for 2018, according to data compiled by Bloomberg.
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Still, buyers from overseas have been coming in slowly overall, with total foreign ownership of Saudi stocks at about 5 percent - below that of neighbors such as the UAE, members of the MSCI EM index since 2014.
However, McDermott argued that the move of Argentina from EM would indicate that country's prospects are improving and their GDP per capita has improved.
Saudi market will probably face hurdles in retaining foreign money unless companies become more transparent, some investors said.
Officials predict a 5% stake sale in Saudi Aramco, now expected to go ahead in early 2019, will raise US$ 100 billion.
The Invesco MSCI Saudi Arabia Ucits ETF, will offer investors pure passive exposure to the largest economy in the Middle East.
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