By Ovunc Kutlu
ANKARA
The Turkish stock market will not be hurt if Saudi Arabia's stock exchange is included in Morgan Stanley Capital International's (MSCI) Emerging Market (EM) index, experts said Thursday.
MSCI is a stock market index used by many funds and investment vehicles worldwide.
"The opening of Saudi's stock market has raised hopes that the country may eventually be granted emerging market status by MSCI," Jason Tuvey, a Middle East expert at London-based Capital Economics, told Anadolu Agency.
"MSCI recently launched standalone indices for Saudi Arabia. But, according to company officials, it is unlikely for the Saudi exchange to gain EM status, or inclusion in the MSCI EM index before mid-2017," he said.
Saudi Arabia opened its stock exchange Tadawul to investment by foreigners and foreign companies on Monday.
The kingdom is in the MSCI Frontier Markets Index, a group of countries that is one step below the EM index.
Bill Witherell, the chief global economist of Cumberland Advisors, said Tadawul's inclusion in the EM index would be good for the overall market perception of 'the Middle East region as a good place to invest.'
"Of course, some domestic Turkish investors may welcome an opportunity to invest in the Saudi market as well," he said, adding that the effects of Tadawul's inclusion to EM index would be small for Turkey.
The Saudi stock market is the largest in the Middle East with a market capitalization of around $530 billion, while Turkey's Borsa Istanbul had market capitalization of around $220 billion in 2014.
Turkey has been in the MSCI EM index for a while, Gokhan Sen, vice president of international markets research at Ak Investment in Istanbul, said. "Saudi Arabia will have a 2 percent weight in the EM index. This may affect Turkey's share in the index by a small degree."
"However, this is inconsiderably small," Sen underlined.
Another market expert agreed, saying Tadawul's inclusion in the index will not affect Turkey.
"I don't expect it to have any negative effects on Turkey," said Gizmen Nalbantli, a research analyst at foreign exchange company IsikFX in Turkey.
"Turkey has a 1.39 percent weight in the EM index. This is estimated to increase to two percent if South Korea and Taiwan are included in the MSCI Developed Markets index, which is one step above the EM index," he explained.
Nalbantli also emphasized that Turkey may benefit from further cooperation with Saudi Arabia in future, now that the kingdom is open to foreign investors.
-MSCI index
Nalbantli stated that there are three major criteria to inclusion in the MSCI EM index: Sustainable economic growth, market access, and the markets's volume and liquidity.
"A country needs to exceed its per capita income by 25 percent for three consecutive years for sustainability. Market value and liquidity criteria are determined by the number of public companies in the country, while market access depends on the volume and liberty of foreign investment flow into the country," Nalbantli explained.
