Dubai — Oil has denied Saudi Arabia the opportunity to overtake SA as the biggest stock market in the Middle East and Africa, even as political turmoil and a faltering economy hold back share prices in Johannesburg.
The total market capitalisation of the South African bourse was $489bn on Friday, about $25bn more than that of Riyadh’s. The JSE’s main index has advanced 10% in 2017, about five times the gain in Saudi Arabia’s Tadawul all share index. The kingdom’s market reforms, designed to attract foreign investors, have been countered by the effects of a lower oil price, its main source of income.
"While SA’s politics is improving a bit and the economy is now out of recession, oil prices haven’t gone up," said Didier Rabattu, the head of equities at Lombard Odier Asset Management in Geneva, who manages a $920m emerging markets equities fund.
"And Saudi Arabia’s inclusion to MSCI emerging markets is still pretty remote."
Saudi shares erased losses for the year in June, when index compiler MSCI said the country could potentially be classified as an emerging market in 2018, which would trigger the inflow of billions of dollars. FTSE Russell is expected to announce at the end of September whether it will add the kingdom to its emerging market category.
Share performances in both countries have lagged an MSCI index for developing nations, which has climbed 27% in 2017. While Johannesburg’s benchmark has outperformed Saudi Arabia’s, its performance has been hindered by an economy that dipped briefly into recession and as investors await the selection of President Jacob Zuma’s successor as leader of the governing party in December.
Another factor keeping the combined value of Johannesburg-listed stocks ahead of Riyadh’s in dollar terms is foreign exchange. While the Saudi riyal is pegged against the greenback, the rand has strengthened 6.3% so far in 2017 to a level of R12.9291 per dollar on Friday.