Macro Talking Points, 27 June 2017: MSCI and Oil

Dr Marie Owens Thomsen

The MSCI Emerging Markets Index (MSCI EM) has a timeline for the inclusion of Saudi Arabia that mirrors that of China. Saudi Arabia has now been put on the watch list for a targeted inclusion in June 2018. The potential size in the index is 2.5% but with the privatisation of Saudi Aramco, the weight could rise to 5%.  MENA (Qatar, UAE and Egypt) currently represents 2% in the index.  According to Franklin Templeton Investments, the 20 markets that have been added to the MSCI EM since 1994 have seen an average increase in performance of around 60% over the subsequent 1-2 years, with a median 27% median out-performance of the index. In the 12 months before the actual inclusion of Qatar and Dubai, those markets rallied 48% and 115% respectively. Saudi Arabia could also be subject to an inclusion into the FTSE EM index by September 2018. These developments are unambiguously positive for Saudi Arabia.

Meanwhile, the WTI price has risen to USD 43.7/barrel, up a dollar from the 21 June low. Stock markets dislike sharp drops in the oil price and the JPY has weakened against the USD as the fear of a lower oil price receded. Tomorrow at 16:30 CEST the EIA will publish the weekly estimate of oil inventory levels. Expectations are for a drop by 2.25 million barrels last week according to Bloomberg.