Saudi Aramco Heads to MSCI Indexes, Prompting Profit Taking

MSCI Inc. (NYSE: MSCI), one of the largest providers of indexes for use by issuers of ETFs, moved to include Saudi Aramco in its international benchmarks, a move that stoked some profit-taking in the newly public shares of the Saudi oil giant.

Earlier this month, Saudi Aramco priced the massive 3 billion shares at 32 riyals ($8.53) each in its IPO, according to a source familiar with the IPO process. The company’s market value has since reached $2 trillion, making it larger than either Apple (NASDAQ: AAPL) or Microsoft (NASDAQ: MSFT), the two biggest American companies by market value.

MSCI’s inclusion of Aramco in indexes such as the widely followed MSCI Emerging Markets Index sets the stage for the stock’s inclusion for it to be added to ETFs such as the iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG) and the iShares MSCI Emerging Markets Index (EEM).

“Inclusion in a benchmark index attracts inflows from passive investors who track those indexes but can lead to some initial profit-taking, especially if funds or retail investors bought in advance of a company being added,” according to Reuters.

Adding Aramco To Indexes

MSCI rival FTSE Russell said earlier this month it will add Aramco to indexes, such as the FTSE All-World Index, FTSE Global Large Cap Index, and the FTSE Emerging Markets Index.

That will allow the stock to eventually ETFs such as the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) and the Schwab Emerging Markets Equity ETF (NYSEArca: SCHE).

“Index compiler MSCI said last week Saudi Aramco would have an estimated weight of 0.16% in its emerging market index and an estimated weight of 6.03% in the MSCI Saudi Arabia Index,” according to Reuters.

The iShares MSCI Saudi Arabia Capped ETF (NYSEArca: KSA) follows a derivative of the MSCI Saudi Arabia Index, meaning Aramco is poised to become one of that ETF’s largest holdings.

Aramco has also devised a dividend of $75 billion for 2020, greater than five times Apple’s payout, which is already among the most significant of any S&P 500 company.

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