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17 December 2019

Saudi Aramco’s inclusion in indexes seen supporting stock

The Gulf oil producer raised $25.6 billion in its share sale, which became a local affair after foreign fund managers shunned its premium valuation.


Saudi Aramco’s stock should get further support this week from global index compilers, potentially inflating a valuation that is already seen by many investors as too high, reported Bloomberg.

According to analysts, MSCI, FTSE Russell and S&P Dow Jones Indices will commence adding Saudi Aramco to their benchmarks in an accelerated process due to the size of the offering, which could draw more than $1 billion to Tadawul. The state-owned energy giant will also become part of the main Saudi gauge, the Tadawul All Share Index.

Buying from index-tracking funds could consolidate Saudi Aramco’s market value above $2 trillion, the level sought by Crown Prince Mohammed bin Salman. The stock briefly traded above that mark on its debut last week and closed above it for the first time this week.

International investors baulked at the stock during the initial public offering, pointing to Saudi Aramco’s dividend yield, which now is just 3.75 per cent based on the $75 billion a year the company has promised to pay shareholders, among other things.

Passive money managers tend to be buyers of the session before the actual inclusion, lifting price and volume during those sessions. Dubai-based Arqaam Capital expects around $1.16 billion of flows this month from investors following MSCI and FTSE gauges, while EFG-Hermes forecasts inflows of as much as $1.24 billion.

Index compilers did not consider or gave a reduced weight to, the tranche of shares that were sold to retail investors in the IPO because individuals have the incentive to hold them for 180 days in order to get bonus shares.

Arqaam and EFG-Hermes analysts expect Saudi Aramco’s weight within the MSCI Emerging Markets Index to be between 16 basis points to 17 basis points, that is less than the representation of other Saudi stocks such as Al Rajhi Bank (35 basis points), SABIC (31 basis points) and National Commercial Bank (25 basis points).

RELATED STORIES: Saudi Aramco MSCI FTSE Russell S&P Dow Jones Crown Prince Mohammed bin Salman





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