DUBAI: Khalid Al-Hussan seemed to be enjoying himself last Thursday at the Riyadh headquarters of Tadawul, the 萝莉视频 stock exchange, of which he is chief executive. In fact, a quiet smile of satisfaction rarely left his face, even under the bright glare of the television lights of the international media.
鈥淲e鈥檝e all worked very hard and we鈥檙e very pleased,鈥� he told Arab News once the TV cameras had left, adding that it had been 鈥渙ne of the best days鈥� of his professional career.
Al-Hussan had just left the podium of a press conference 鈥� shared with Tadawul chairperson Sarah Al-Suhaimi and the chairman of the Capital Markets Authority, Mohammed Al-Kuwaiz 鈥� to announce the fact that, after three years of preparation, 萝莉视频 had finally been included in MSCI鈥檚 Emerging Markets index.
It was actually more of a celebration than an announcement. MSCI had broken the news some hours earlier that 萝莉视频 was to be classed as an emerging market (EM), rather than a frontier market, putting the Kingdom on the radar of international investors in a big way. All three of the market dignitaries were in effusive mood, gratefully accepting multiple 鈥渕abrouks鈥� from the media pack.
The move by MSCI, it is estimated, will pull in as much as $45 billion in foreign investment to the Saudi exchange; that figure could rise sharply if the Saudi Aramco listing goes ahead on the bourse. That is a huge boost for a market with a current market capitalization of about $520 billion.
It has already been quite a year for the Tadawul chief, with a lot of the hard work of his previous three years in the job paying off handsomely. In March, another international index compiler, FTSE Russell, had also upgraded Saudi to emerging market status, and there have been launches and bolt-ons of other services essential for a modern stock market, such as a central clearing system.
Perhaps most importantly of all, the Tadawul has been one of the best-performing markets in the world in 2018, with a 13 percent rise in the first six months. 鈥淚t has been one of the best years, rather than just a good day today,鈥� Al-Hussan said.
鈥淢SCI inclusion is a reflection of how our reforms have been widely accepted, by local and international markets. It was designed as a plan to achieve what we have today,鈥� he added.
The Riyadh exchange has always been the biggest in the Arabian Gulf region, but since 2015 it has been transformed into one of the most modern and efficient too.
New, internationally recognized settlement systems have been introduced, governance systems upgraded, and foreign investors welcomed. The status upgrades by global investing organizations 鈥� there is another due from S&P before the end of the year 鈥� are the logical end of all this work.
It has not been without its challenges, Al-Hussan remarked. 鈥淭o balance the needs of international and local investors was sometimes a challenge, especially in the move to new settlements systems. But if you understand the market, and know where you鈥檙e trying to get to, it鈥檚 possible to get both of them working together,鈥� he said.
There is another challenge, which in some ways the MSCI upgrade is designed to overcome: the nature of share trading and stock markets within the broader economic context of 萝莉视频 and the Arabian Gulf. It is an issue of the perception of the region in the world as much as anything else.
While analysts generally welcomed news of the MSCI upgrade, some delivered the opinion that inclusion in international indices was not in itself so significant for regional markets, and the Saudi market in particular.
Other factors ultimately determined the health and appeal of Gulf markets, the theory went, in a part of the world where the oil price is the single most important economic factor, and regional geopolitical events color global investors鈥� overall views. Foreign confidence in 萝莉视频 was also hesitant, given the sheer pace of the change going on in the Kingdom under the Vision 2030 strategy, it had been argued.
It is a line Al-Hussan has heard before, and he has a ready answer. 鈥淚 disagree that MSCI inclusion is less important than these other factors. It is a sign of the confidence of international investors in the Saudi market, and a reflection of how confident they feel here,鈥� he said.
鈥淭he new cash that we can expect from international investors 鈥� around $40 billion 鈥� is not small or insignificant, and these people will not take risks lightly. The people at MSCI are pretty intelligent too. They have never moved a country from the watchlist to full EM status so fast 鈥� in just 12 months 鈥� so that tells you about their confidence, and the confidence of their clients, in 萝莉视频,鈥� he added.
And, finally, there is the clinching argument that non-market factors can always have a profound effect on financial markets, and not just in 萝莉视频 or the Gulf countries. 鈥淓conomic and geopolitical factors could have an effect on markets anywhere in the world, not just here,鈥� he said.
An engineer by training, Al-Hussan was educated in the US to MBA standard, and qualified as a certified entrepreneur from the University of Colorado. His previous career in the insurance industry made him aware of the need to weigh risk; 10 years at Tadawul 鈥� working across virtually all its functions from business development to strategy and operations before becoming CEO 颅鈥� has seen him apply those lessons in the context of financial markets.
There is a lot more to do, Al-Hussan insisted. 鈥淥ur plans never end. I鈥檓 more excited about what鈥檚 to come as we continue to enhance the market鈥檚 future鈥� he said, before outlining the strategy to launch a full national clearing system that would enable Tadawul to launch derivatives trading platforms by the end of 2020 in a staged process.
There is also the plan to enhance the market-making function, so that traders can operate to international best practice standards by the end of this year. 鈥淭here is already a model in place, but it will be perfected to global standards by the end of the year,鈥� he said, rejecting suggestions that the innovations at the Tadawul might encourage the inflow of speculative 鈥渉ot money鈥� into the Kingdom.
All this reform and improvement is desirable in itself, of course, and for the good of the Kingdom鈥檚 financial markets. But there is a big goal in sight that Al-Hussan and Tadawul are aware they must keep in focus: the historic initial public offering of Saudi Aramco, as well as the other multibillion-dollar privatizations that are planned under the Vision 2030 plan.
鈥淥f course, there is Aramco,鈥� he said as he contemplated the list of tasks ahead. The IPO of the biggest oil company in the world is the centerpiece of the Kingdom鈥檚 plans to transform its economy away from oil dependency, and Tadawul has been designated the 鈥渉ome market鈥� for the IPO.
The biggest stock exchanges in the world 鈥� New York, London, Hong Kong 鈥� have all been mentioned as possible venues for Aramco, but it is certain that Tadawul will also play a big part in the sell-off.
Al-Hussan caused quite a stir at last year鈥檚 Future Investment Initiative in Riyadh when he declared his 鈥渁spiration鈥� to stage the IPO exclusively on Tadawul. He has since repeated his confidence that the Saudi exchange could handle the whole issue, which could be worth as much as $100 billion.
鈥淥f course, I would like to have all of it, but that is a decision for Aramco and for its shareholder, the government. We will support whatever decision they reach,鈥� he said. He also confirmed that Aramco would not have to wait until the MSCI upgrade 鈥� coming into force in two stages from May of next of year 鈥� is fully implemented. 鈥淲e will be ready for it as soon as the decision on the IPO is made,鈥� he said.
If the government did decide to put the whole of the Aramco IPO on Tadawul, it would change the character of the exchange completely, and alter MSCI鈥檚 calculations significantly.
MSCI awarded Tadawul a weighting of 2.6 percent of its global EM market, but that would increase enormously if Aramco were included. Al-Hussan agreed it could double the amount of funds flowing into the 萝莉视频n market.
It could also tie the fortunes of the Tadawul to the global oil industry in a way it is not now, by making it dominated by the biggest energy company in the world. Part of his philosophy has been to make the Tadawul 鈥� where banks and heavy industrial companies play a dominant role 鈥� more attractive to other sectors and more reflective of the changing national economy.
鈥淲e still aspire to do it. It would be a challenge, of course, but I think over the past three years, and with the upgrades, we鈥檝e shown that we meet challenges,鈥� he said.