JSE still king in the Middle East and Africa, despite economic slump

Dubai – Oil has denied Saudi Arabia the opportunity to overtake South Africa 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 capitalization of the South African bourse was $489bn as of Friday, about $25bn more than that of Riyadh’s after its main index advanced 10% this year, about five-times the gain in Saudi Arabia’s Tadawul All Share Index. The kingdom’s market reforms, which were designed to attract foreign investors, have been countered by the effects of lower crude price, the kingdom’s main source of income.

“While South Africa politics is improving a bit and the economy is now out of recession, oil prices haven’t gone up and Saudi Arabia’s inclusion to MSCI emerging markets is still pretty remote,” said Didier Rabattu, the head of equities at Lombard Odier Asset Management in Geneva, who manages a $920m emerging-markets equities fund.

Saudi Arabian shares erased losses for the year in June when index compiler MSCI Inc. said the country could potentially be classified as an emerging market next year, a move that would trigger billions of dollars of inflows. FTSE Russell is expected to announce at the end of this month whether it will add the kingdom to its emerging-market category.

Share performances in both countries have lagged an MSCI’s index for developing nations, which has climbed 27% this year. 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 ruling party in December.

Another factor keeping the combined value of Johannesburg stocks ahead of Riyadh’s in dollar terms is foreign exchange: while the riyal is pegged against the greenback, the rand has strengthened 6.3% this year to 12.9291 per dollar on Friday.

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