EFTA01435576.pdf

Saudi Arabia Deutsche Bank Markets Research Middle East Saudi Arabia Strategy Saudi Arabia Date 29 March 2018 Strategy Update Saudi Arabia included in FTSE Secondary EM Index Saudi Arabia expected to weigh —3% in the index, inflows of up to -USD4.5bn expected FTSE announced that Saudi Arabia would be promoted to Secondary Emerging market status in five tranches, from Mar-2019 to Dec-2019. It expects Saudi Arabia to have an index weight within FTSE GEIS of 0.25% and 2.7% within the FTSE Emerging index. Saudi Arabia could be the 10th largest constituent on the EM Index with an expected weightage of 3% as per the data suggested by FTSE Emerging Saudi Arabia Inclusion Index; at current market prices this could translate into USD4.5bn of inflows into the Saudi Equity market. The FTSE Saudi Arabia All Cap Index has 79 constituents and the large cap stocks are likely to attract bulk of the expected inflows; we estimate Sabic could attract some USD727m in inflows; Al Rajhi USD504m, NCB USD385m. Figure 1:FTSE Saudi Arabia stocks : potential flows of USD4.5bn Constituent Sector Saudi Basic Industries Corp Saudi Telecom Co Samba Financial Group Saudi Arabian Mining Co-Maaden Almarai Co Ltd Riyad Bank Saudi Electricity Co Alinma Bank Others Total Source: Deutsche Bank, FTSE, Bloomberg Finance LP Chemicals Al Rajhi Banking & Investment Corp Banks National Commercial Bank SJSC Banks Telecommunications Banks Mining Food Producers Banks Electricity EFTA01435576 Banks Marketcap (USD bn) 94 33 35 45 15 17 15 11 23 8 213 Net marketcap (USD bn) 23 16 12 8 7 6 6 5 4 4 53 Expected FTSE EM weight 0.48% 0.34% 0.26% 0.16% 0.15% 0.12% 0.12% 0.11% 0.09% 0.08% 1.10% Funds flow (USD m) 727 504 385 239 222 186 180 170 137 EFTA01435577 126 1,654 Aleksandar Stojanovski Research Analyst +971-4-361-1786 Deutsche Bank AG/London Distributed on: 29/03/2018 03:12:07 GMT Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 083/04/2017. 7T2se3r00t6kwoPa EFTA01435578 29 March 2018 Saudi Arabia Figure 2: Expected weight of Saudi Arabia on the FTSE Secondary EM index 28.0% 10.0% 15.0% 20.0% 25.0% 30.0% 0.0% 5.0% China Taiwan India Brazil South Africa Source: Deutsche Bank, FTSE, Bloomberg Finance LP 13.3% 11.3% 9.1% 7.9% 4.3% 4.3% 3.5% 3.2% 3.0% Russia Mexico Thailand Malaysia Saudi Arabia Others 12.1% FTSE inclusion done; MSCI EM decision to be announced in June Saudi Arabia is also nominated for inclusion in the widely tracked MSCI EM Index, with a decision on inclusion to be announced in June '18. A favorable decision could translate into some USD39bn in inflows, with actual inclusion expected for June '19. For more details on Saudi inclusion into MSCI EM please refer our strategy report dated 20-Feb-18. It is interesting to observe that Saudi Arabia has already witnessed foreign fund inflows of USD619m in Jan'18 - the highest inflows on record - followed by USD364m in Feb'18. The inclusion by FTSE and the impending decision by MSCI could mark the start of a sustained period of higher inflows into Saudi equities, in our view. Page 2 Deutsche Bank AG/London EFTA01435579 29 March 2018 Saudi Arabia Appendix 1 Important Disclosures *Other information available upon request *Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors . Other information is sourced from Deutsche Bank, subject companies, and other sources. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at https://research.db.com/Research/Disclosures/- CompanySearch. Aside from within this report, important risk and conflict disclosures can also be found at https://- research.db.com/Research/Topics/Equities? topicId=RB0002. Investors are strongly encouraged to review this information before investing. Analyst Certification The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s). In addition, the undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation or view in this report. Aleksandar Stojanovski Equity Rating Key Buy: Based on a current 12- month view of total share-holder return (TSR = percentage change in share price from current price to projected target price plus pro-jected dividend yield ) we recommend that investors buy the stock. Sell: Based on a current 12-month view of total share-holder return, we recommend that investors sell the stock. Hold: We take a neutral view on the stock 12-months out and, based on this time horizon, do not recommend either a Buy or Sell. Newly issued research recommendations and target prices supersede previously published research. Equity rating dispersion and banking relationships Deutsche Bank AG/London Page 3 EFTA01435580 29 March 2018 Saudi Arabia Additional Information The information and opinions in this report were prepared by Deutsche Bank AG or one of its affiliates (collectively "Deutsche Bank"). 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Copyright 0 2018 Deutsche Bank AG Deutsche Bank AG/London Page 7 EFTA01435591 David Folkerts-Landau Group Chief Economist and Global Head of Research Raj Hindocha Global Chief Operating Officer Research Anthony Klarman Global Head of Debt Research Michael Spencer Head of APAC Research Global Head of Economics Paul Reynolds Head of EMEA Equity Research Andreas Neubauer Head of Research - Germany International Production Locations Deutsche Bank AG Deutsche Bank Place Level 16 Corner of Hunter & Phillip Streets Sydney, NSW 2000 Australia Tel: (61) 2 8258 1234 Deutsche Bank AG London 1 Great Winchester Street London EC2N 2EQ United Kingdom Tel: (44) 20 7545 8000 Deutsche Bank AG Mainzer Landstrasse 11-17 60329 Frankfurt am Main Germany Tel: (49) 69 910 00 Deutsche Bank Securities Inc. 60 Wall Street New York, NY 10005 United States of America Tel: (1) 212 250 2500 Deutsche Bank AG Filiale Hongkong International Commerce Centre, 1 Austin Road West,Kowloon, Hong Kong Tel: (852) 2203 8888 Deutsche Securities Inc. 2-11-1 Nagatacho Sanno Park Tower Chiyoda-ku, Tokyo 100-6171 Japan Tel: (81) 3 5156 6770 EFTA01435592 Dave Clark Head of APAC Equity Research Spyros Mesomeris Global Head of Quantitative and QIS Research Steve Pollard Head of Americas Research Global Head of Equity Research Pam Finelli Global Head of Equity Derivatives Research EFTA01435593