Saudi Arabia's stock market led falls in the Gulf on Wednesday after MSCI decided not to consider the country for emerging market status, while Egypt fell sharply as blue chip Orascom Telecom Media continued sliding. The Tadawul All Share Index dropped 0.9 percent to 6,567 points. In its annual classification review, MSCI praised market reforms announced by Saudi authorities but did not set a date for a review that could place the country in its emerging market index. It said that once implemented by mid-2017, the reforms would "bring the Saudi equity market closer" to inclusion. This appeared to suggest that the Saudi market was unlikely to be included before mid-2018 at the earliest. In a research note, investment bank EFG-Hermes noted that if MSCI followed its standard time frame - which it does not always do - May 2019 would be the earliest possible inclusion date. Investors had not been betting heavily that Saudi Arabia would be placed on the review list, fund managers said, but MSCI's decision was nevertheless disappointing and the index dropped 0.9 percent. MSCI is an international compiler of equity indexes and inclusion in its emerging market index would draw billions of dollars of passive funds - those that track benchmarks - to Saudi Arabia. Dar Al Arkan, which soared last week on hopes it would benefit from a house building program in Saudi Arabia's economic reform program, fell back 5.7 percent and was the most heavily traded stock. Retailer Fawaz Abdulaziz Alhokair Co, which had been rising sharply on its plan to sell its investment in Spanish clothing retailer Blanco for 350 million riyals ($93 million), fell back 7.3 percent. But Saudi Electricity, which has surged this week on news of a novel financing method for two planned solar power plants, gained a further 1.0 percent. MSCI also decided on Tuesday to delay including Chinese A-shares in its emerging markets index. This was modestly positive for the United Arab Emirates and Qatar, since Chinese inclusion would have diluted their weightings in the index. With MSCI's decision to remove Pakistan, and possibly Nigeria and Argentina, from frontier market status, "Kuwait and the Middle East and North Africa could dominate the benchmark (60 percent), potentially prompting more MENA allocations by frontier market managers", EFG-Hermes said. However, on Wednesday investors in the Gulf focused mainly on weak oil prices and global markets, and most regional bourses dropped. Dubai's index slipped 0.2 percent as Emaar Properties lost 0.6 percent. However, smaller real estate developer Deyaar climbed 3.0 percent as it posted the market's largest volume. Abu Dhabi's index fell 1.0 percent as blue-chip banks sagged, with First Gulf Bank down 2.9 percent. Qatar's index edged up 0.1 percent as Mesaieed Petrochemical , the most heavily traded stock, jumped 8.5 percent. Egypt sank 2.1 percent as billionaire Naguib Sawiris's Orascom Telecom, the most active stock, dropped 3.2 percent, bringing its losses this week to 15 percent. The slide was triggered by the decision of Orascom subsidiary Beltone to drop its effort to buy the investment banking arm of Commercial International Bank , after the deal failed to win regulatory approval. The regulatory debacle was seen by some investors as a blow to Sawiris and the investment environment in Egypt in general. — SG/Agencies
