The Arab world’s largest equity market will finally be accessible to U.S. investors via an exchange traded fund with today’s launch of the iShares MSCI Saudi Arabia Capped ETF (NYSEArca: KSA).
Last year, Saudi authorities granted permission to foreign financial institutions to trade equities in the Tadawul market, but it will be mid-2015 before the largest OPEC producer and Gulf Cooperation Council (GCC) is officially open to foreign investors. [What Saudi Arabia’s Market Liberalization Means for ETFs]
Saudi Arabia’s equity market is significantly larger than those of Israel and the United Arab Emirates, of which there are three country-specific ETFs: The new iShares MSCI UAE Capped ETF (NasdaqGM: UAE), the iShares MSCI Israel Capped ETF (NYSEArca: EIS) and the Market Vectors Israel ETF (NYSEArca: ISRA).
iShares also offers the iShares MSCI Qatar Capped ETF (NasdaqGM: QAT). QAT and UAE debuted near the time that those countries were being promoted to the MSCI Emerging Markets Index from frontier market status. QAT and UAE have nearly $87 million in combined assets under management. Those markets became the first in the Middle East to earn a promotion from MSCI to emerging markets status from the frontier classification
MSCI currently does not classify Saudi Arabia as an emerging or frontier market, however it is a member of the MSCI GCC Countries Index, according to MSCI.
“One interesting note is that while the index has 30 percent allocated to both financials and materials, it has only 1.4 percent allocated to energy stocks. While this may seem a microscopic weighting for a country in which oil exports make up half of its gross domestic product, it makes perfect sense when you consider that Saudi’s oil production is state-owned and not publicly traded,” reports Eric Balchunas for Bloomberg.
Saudi Arabia is the largest producer in the Organization of Petroleum Exporting Countries (OPEC). Both Market Vectors and Global X have also filed plans for single-country Saudi Arabia ETFs though neither fund has come to market.
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