Will Saudi Arabia Be Next on MSCI Emerging Market Index?

After adding China to its emerging market index this year, MSCI is now watching Saudi Arabia for possible inclusion to this index in 2018, based on the progress of various stock market reforms the country has implemented.

If the Middle Eastern country is added to the MSCI emerging market index, it would attract more investor interest. As growth in emerging markets rises, with the International Monetary Fund projecting a 4.5% growth rate for 2017, according to Tadawul, the Saudi Arabia stock exchange, more investors are likely to benchmark against emerging markets indices. And with Saudi Arabia garnering a potential 2.4% weight in the MSCI emerging markets index if this proposal goes through, more investors would need to have exposure to the country’s stock market.

“Saudi Arabia’s addition to the MSCI Watch List is an important milestone for Tadawul, and reflects the Kingdom’s significant progress in capital market reform in support of Vision 2030,” said Sarah Al Suhaimi, chairperson of Tadawul. “Potential inclusion in MSCI’s Emerging Market Index signals to international investors that the country’s capital market has attained greater maturity in terms of efficiency, governance, and regulatory framework.”

Saudi Arabia opened up its equity markets to direct foreign investment in 2015, and has been making market reforms since 2016. The improvements that MSCI sees in the Saudi Arabia stock market include:

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The raising of the cap for qualified foreign investor ownership from 20% to 49%
Lowering of the assets under management criterion to be considered a qualified foreign investor from $5 billion to $1 billion
The recognition of additional institutional investors such as sovereign wealth funds and university endowments as qualified foreign investors
Simplifying the registration process for qualified foreign investors
Changes to the exchange’s clearing and settlement process
Accommodation of securities lending and short selling

To consider Saudi Arabia’s inclusion to its emerging market index, MSCI will weigh aspects such as:

Whether the country’s opening up of its equity market to foreign investors is adequate to consider the change
Should investors have more time to absorb the changes before the country’s addition to the index
Are there any residual concerns about market accessibility
The experiences of qualified foreign investors.

Tags: China, MSCI, Saudi Arabia, Stock Market

Auto-enrollment and buyouts will be “big drivers” of growth for work and trust-based pensions, according to a new report by the research and consulting firm, GlobalData. The firm also predicts that all businesses will provide a pension plan for their employees by February 2018, and the total minimum contribution will be 8% by April 2019.

“Auto-enrollment has been introduced by the government to increase pension savings through employer-workplace pensions, and this will be a big driver of growth in work- and trust-based pensions,” said Danielle Cripps, financial analyst at GlobalData, in a news release. “By February 2018, all businesses with employees will have to provide a pension to those eligible, and by April 2019 the total minimum contribution paid into a pension will be 8%, meaning that more individuals will be contributing, and at higher amounts. However, there is fear that increasing contributions may cause individuals to opt out.”

In 2016, the UK pensions market’s annual premium equivalent (APE) was worth £10.8 billion ($13.9 billion), according to the Association of British Insurers. GlobalData predicts it will reach £17.5 billion ($22.6 billion) APE by 2021.

However, critics say those who qualify for the state pension system now need 35 years of National Insurance Contributions (NICs) and will lose an average of £19,000 ($25,000). The original system required 30 years, while 10 years of NICs are required to qualify for any pension. Before the shift in plans, Age UK calculated that 70,000 people would lose all state pension qualifications, according to the BBC.

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UK state pensions changed in 2016 from a two-tier to a flat-rate model. Additionally, the eligibility age to receive the plans continues to grow as life expectancy increases. In the two-tier model, basic pensions would be topped off with an extra earnings-linked payment. The flat-rate pension is a single-tier option that combines the previous tiers.

Also discussed in the report are “new pension freedoms,” which see more participants opting for cash withdrawals or income drawdowns as opposed to buying annuities.

In order to negotiate the increasing pension choices experts are anticipating a higher demand for financial services. However, independent financial advisors tend to focus more on their wealthier clients, creating an advice gap for the lower and middle class. To resolve the issue, Cripps feels that advances in technology and artificial intelligence are required.

“Technology and robo-advice will provide a solution to this by helping individuals understand how much they have saved across all of their pension pots,” Cripps says, and suggests workers ask advisors what needs to be done in order to ensure a true retirement.

Tags: flat-rate, GlobalData, UK Pensions