The KSA Saudi Arabia focused ETF, took out a key technical level after an MSCI review.

The iShares MSCI Saudi Arabia Capped ETF (KSA) surged 1.8% Monday, entering a bullish trend. MSCI recently reviewed the inclusion and weight of stocks of the Kingdom of Saudi Arabia.

The KSA ETF is technically in an uptrend after making successive higher-highs and higher-lows. Moreover, on Monday, the ETF penetrated the 50-day moving average (the blue line) on rising volume. This penetration shows higher upside momentum.

MSCI review process

In March this year, MSCI said it had decided to include Saudi Arabian stocks in its MSCI Emerging Markets Index and the MSCI ACWI Index. It would do so in a two-step process starting in June this year.

Apparently, MSCI consulted with international institutional investors on the subject.

MSCI took note of “a number of regulatory and operational enhancements in the Saudi Arabian equity market that effectively improved market access for such investors.”

Previously, MSCI took a similar step by including China.

“The MSCI Saudi Arabia IMI will represent approximately 2.6% of the MSCI Emerging Markets IMI (which includes small-cap stocks) and will add 69 securities to the latter index,” said MSCI in its blog. “There will be a two-step inclusion process, at the May and August Semi-Annual Index Reviews.”

In August, Tadawul, the Saudi Stock Exchange, completed the second and final phase of joining the MSCI Emerging Markets Index. It raised its weight on the closely monitored index to 2.8 percent, said a Reuters report.

Foreign investor interest

The imminent inclusion in MSCI indices triggered inflows of foreign investor money into Saudi Arabian stocks. Foreigners were net buyers of Saudi stocks every month through July this year. The KSA and MSAU Saudi ETFs hoovered up over $1 billion in assets under management after MSCI.

But volatility dogs the Saudi stock market. In the second half of this year, investors headed for the exits after Fitch Ratings downgraded the Kingdom’s credit rating from ‘A+’ to ‘A.’ This pressured the value of the KSA ETF.

Nevertheless, a lot of active emerging-market funds kept their distance from Kingdom stocks because of the murder of Khashoggi, high valuations, and ESG concerns.

However, this ‘dry powder’ could be a positive factor in favor of the Saudi Aramco IPO.

Saudi Aramco’s IPO

Emerging market investors will also wait for the impact of the initial public offering (IPO) of the Kingdom’s massive state-run oil producer, Saudi Aramco.

Sales of shares of Saudi Aramco will commence November 17, according to the prospectus published on Saturday.

Described as an “asset class of its own,” the massive IPO could value the company between $1 trillion and $2 trillion.

The IPO could have a significant impact on the Saudi stock market and the KSA ETF.

[Related Story: Saudi Arabian Venture Shop Aims for a Second $500 Million Fund ]