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Privatisations & ownership limits could increase weighting However, our analysis of Saudi Arabia’s weighting could be significantly understated for two reasons, including: (1) our analysis currently uses a foreign ownership limit (FOL) of 0.2 (as previously guided by the MSCl). This could be understating Saudi’s weighting given the increase in foreign ownership introduced in the CMA’s announcement. Indeed, if we increased our FOL factor to 0.4, Saudi would be 2.8% of the MSCI and could attract US$21.3.bn of inflows; and, (2) Saudi Arabia (according to local press and the NTP) is seeking a number of privatisations in the coming 24 months, including a potential IPO of Aramco. Inclusions of these companies would likely increase Saudi’s weighting in the MSCI EM index and thus attract higher inflows to the market. Inclusion of energy assets could see Saudi accounting for 4.1% of MSCI EM By way of example, we believe inclusion of Saudi Aramco in the Saudi market would profoundly affect the weighting of Saudi Arabia in the MSCI EM in our view. Indeed, if we were to replicate the analysis above using the Deputy Crown Prince hypothetical valuation of US$2tn for Saudi Aramco and a 5% inclusion factor (given 5% or less of Saudi Aramco would be listed according to interviews with the Deputy Crown Prince), Saudi Arabia would account for 4.1% of the MSCI EM index and likely attract cUS$31bn of inflows from passive and active funds. We note, our calculations are highly sensitive to the inclusion factor that MSCI would ultimately use (we assume 5%, in line with its estimated free float of 5%). An inclusion factor of 10% for example, would see Saudi Arabia accounting for 6.6% of the MSCI EM index. Chart 52: If energy assets were included, Saudi Arabia would be the seventh largest constituent of @ CHINA m KOREA = TAIWAN @ INDIA m SOUTH AFRICA @ BRAZIL SAUD: @ MEXICO m RUSSIA = MALAYSIA (EM) m INDONESIA ~ THAILAND m@ PHILIPPINES TURKEY © CHILE m= POLAND @ QATAR m UAE @ COLOMBIA = PERU m GREECE m HUNGARY EGYPT m@ CZECH REPUBLIC Source: BofA Merrill Lynch Global Research, MSCI and DataStream 2S Merrill Lynch GEMs Paper #26| 30 June 2016 47 HOUSE_OVERSIGHT_016157