Standard & Poor's (S&P) will create indexes for the Saudi stock exchange (Tadawul) to boost the foreign exposure of the Arab world's largest bourse, Tadawul said on Wednesday after signing an agreement allowing S&P to become an authorized user of market information. The development came two weeks after MSCI threatened to ban it from its indexes. “The indexes ... can be used as the underlying for third party investment products such as mutual funds, ETFs and other financial products that enable investors in Saudi and abroad to participate in the performance of the Saudi stock market,” Tadawul said in a statement posted on its website. “This means that the Saudi market will get increased exposure to investors around the world,” it added. The agreement follows a warning earlier this month by index maker MSCI that it could scrap all indexes containing securities listed on Tadawul and replace these with indexes excluding Saudi Arabia, following a dispute over licensing rights. Analysts said an MSCI ban would have little impact on Saudi stocks because few shares are foreign-owned. In July, non-Saudi investors accounted for 3.85 percent of the turnover on Tadawul, according to the bourse's website. Non-Arab investors claimed a 0.75 percent share. Saudi-registered foreign companies can invest in Saudi stocks under their own name, as can foreign residents of Saudi Arabia and Gulf Cooperation Council (GCC) nationals. But non-GCC investors, both individual and institutional, who are located outside Saudi Arabia can only invest in Saudi stocks through swap agreements. The disagreement with MSCI centered around Tadawul's desire to have the option of vetoing MSCI product licenses that include Saudi stocks. Last week Dow Jones Indexes, another competitor, launched four new indexes for the region that will include equities in Saudi Arabia, Middle East's largest economy. Dow Jones Indexes is a unit of News Corp.'s Dow Jones & Co., which also encompasses Dow Jones Newswires and The Wall Street Journal. The addition of S&P gives local and international asset managers another benchmark that can be used when designing investment products. “This means that the Saudi market will get increased exposure to investors around the world,” Tadawul's Chief Executive Abdullah Suweilmy said in a statement on the Saudi bourse website. MSCI said it may drop securities listed on the Tadawul from Aug. 24 because of a provision that would give the Riyadh-based bourse rights to prohibit licensing of certain indexes to third parties. Tadawul said Monday in a statement that MSCI had taken a “regrettable position” regarding the licensing issue, adding that other indexing companies had fully agreed to comply with its terms. The exchange is in talks with as many as seven other firms seeking to provide indexes. Regulators have stepped up enforcement efforts to improve transparency as it lures institutional investors who could balance the sharp swings in the volatile market. Foreign investors have slowly trickled in this past year, but net buying has slowed to SR118.45 million ($31.6 million) in July compared with the April peak of SR961 million, according to Zawya Dow Jones calculations. The Saudi bourse, with a market capitalization of more than $300 billion is the largest in the region. The market is the Gulf region's best performer this year, up about 20 percent to date after losing more than half its value in 2008. Tadawul All Share Index lost 0.39 percent on Wednesday to 5,762.75 though other Gulf markets gained.
