(Bloomberg) -- Investors expect a pick up in liquidity and improvements in corporate governance after MSCI Inc. included the Middle East’s biggest stock market into its emerging-market index.

Saudi Arabia’s Tadawul All Share Index has risen 13 percent this year in anticipation of MSCI’s decision, among the best performers in the world. That compares with a 6 percent drop in a gauge that tracks developing-nation equities. The kingdom’s stock market will begin trading at 10 a.m. in Riyadh.

Michael Bolliger, the head of emerging-market asset allocation at UBS Wealth Management’s chief investment office:

• “International investors will need time to understand the dynamics of the market and to familiarize themselves with the risks involved. This will likely need some time. Companies trying to further improve their investor relations can make an important contribution”
• Given the pipeline for IPOs in the kingdom, and if the cap on foreign ownership is lifted, Bolliger expects the Saudi Arabia’s share in the EM index to increase “significantly over the next 12 months, which could bring the Saudi market closer to an index weight of 6 percent, similar to South Africa (6 percent) or Brazil (5.8 percent)”
• “For Saudi Arabia and the region, this is a great opportunity to move into the limelight of international foreign investors, and to attract inflows”

Hootan Yazhari, the head of MENA and global frontier markets at Bank of America Merrill Lynch:

• “Global emerging market fund managers will effectively be forced to have a view on Saudi Arabia. Therefore, Saudi’s profile and awareness among fund managers globally will increase”
• Saudi companies will be “increasingly compared to international peers by investors, therefore making management teams more likely to focus on improving strategy, efficiency and overall performance as they seek to compete for capital. Accountability to shareholders will also increase”
• The IPO market could also pick up “as market liquidity grows and demand for new investment opportunities increases. This could be supportive of government privatizations (including Aramco)”

Mohamad Al Hajj, an equities strategist at the research arm of EFG-Hermes in Dubai:

• “Saudi Arabia’s market performance over the next few sessions is of little relevance in our view. Some selling of the fact is expected”
• Saudi’s upgrade will be conducted over two phases: in May and August 2019 leading to $5.7 billion in each phase; with Saudi making up about 2.6 percent of MSCI EM
• “We still believe banks are the best way to play this. Samba Financial Group, Al Rajhi Bank, and Banque Saudi Fransi are in our MENA Top 20”

Michael Malkoun and Jaap Meijer, analysts at Arqaam Capital, write in a report:

• Passive inflows alone should be about $10 billion
• It’s more likely that MSCI will transition Saudi Arabia’s standalone index to EM at the time of inclusion

Ziyad Al-Ashaikh, Deutsche Bank’s chief country officer for Saudi Arabia:

• The inclusion “represents a major milestone. Not just for the Kingdom but for the entire Middle East and one that demands a great deal of attention from institutional investors globally”
• The market’s potential is very bright going forward

To contact the reporter on this story: Filipe Pacheco in Dubai at fpacheco4@bloomberg.net

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, Dana El Baltaji, Shaji Mathew

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