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Tadawul to adopt Global Industry Classification Standard for listed firms

New developments on economic front necessitate changes to be reflected in the classification of companies

Published: Updated:

In line with its strategy to support the development of the Saudi capital market and to meet the best international practices, the Saudi Stock Exchange (Tadawul) plans to apply the Global Industry Classification Standard (GICS) by January 2017.

Tadawul’s decision to reclassify current market sectors will establish alignment with global standards for classifying listed companies.

This is especially important to enhance the level of transparency in the local market and provide better information to international investors on the performance of local sectors and industries. Moreover, the new classification will encourage all investors to analyze and compare investment performances of different sectors with similar sectors in other global markets. This will contribute in setting sector-based investment strategies.

Previously Tadawul equity market consisted of 15 Sectors. After the GICS adoption, Tadawul equity market will be based on 20 Industry Groups out of total 25, which is Level 2 (Industry Group) in GICS hierarchical classification system. After the GICS will be launched new Tadawul equity market structure will be available on New Market Structure page.

Furthermore, Tadawul plans to communicate all key information related to GICS and the new industry classification of listed companies to market participants and the public through conducting workshops and media awareness campaigns. This information will also be available on Tadawul’s website through the New Industry Classification page.

“The adoption of the Global Industry Classification Standard is one more step in our comprehensive plan to reform the Saudi stock market. By implementing this globally recognized classification standard, Tadawul will enable foreign and local investors to compare the Saudi market versus international markets, and make more informative investment decisions,” said Khalid Al Hussan, CEO of Tadawul.

GICS is a common global classification standard used by thousands of market participants across all major groups involved in the investment process: asset managers, brokers (institutional and retail), consultants, researchers and stock exchanges.

GICS was developed jointly by Standard and Poor’s (S&P) and Morgan Stanley Capital International (MSCI), which are global and leading companies providing independent international financial data, indices and benchmark-related products and services.

The GICS structure is:

• Universal: the structure applies to companies globally

• Reliable: the structure correctly reflects the current state of industries in the equity investment universe

• Flexible: the structure offers four levels of analysis, ranging from the most general sector to the most specialized sub-industry

• Evolving: annual reviews are conducted by S&P Dow Jones Indices and MSCI to ensure that the structure remains fully representative of today’s global markets.

More meaningful comparisons

GICS has been selected as a global industry classification standard to reclassify Tadawul’s sectors. This move will enable Tadawul to be comparable with other global equity markets.

Moreover, this new globally recognized classification standard will encourage foreign and local investors to have better assessment of Saudi Stock Market and would allow more meaningful comparisons with stocks and sectors across international equity markets.

Tadawul’s earlier sector classification had been in place since 2008. However, with the continuous developments in the Saudi economy, new industries have emerged, both in private and public arena. These developments on the economic front also necessitate changes to be reflected in the classification of companies listed on Tadawul.

In the previous sector classification at Tadawul, companies choosing to go public were assigned to sectors that were probably not accurately representing the business of these companies due to classification limitations.

This report was first published in Saudi Gazette on Dec. 5, 2015.