EME Strategy: Saudi Aramco’s IPO – outflows from EME may be smaller than we forecast previously

Saudi Arabia is preparing for the IPO of Saudi Aramco, which may happen in December 2019. Recently, Reuters noted that the size of the placement may be smaller than assumed initially, i.e., 1-2% instead of 5-10%. The agency notes that the state expects the value of the deal to reach a minimum of USD 20-40bn, which would imply outflows of c.USD 0.4-0.7bn from EME, on our numbers. These outflows are smaller than we expected previously (USD 1-4bn), assuming a deal value of USD 50-200bn (FF= 5%/10% and MCap = USD 1-2trn, please see our 30 September flash note for further details). In this flash note, we present our updated fund flows estimates in the two cases for the value of the IPO: i) USD 20bn; and ii) USD 40bn. We stress, however, that the noted flows estimates for active funds may be subject to a greater margin of error than the passive ones (e.g., may occur over a longer period of time). We will present more detailed outflows forecasts from the individual stocks from EME when we get more clarity on the deal’s size. We also note that the estimates below assume the structure of the MSCI EM index following the changes introduced along with the November SAIR (for more details, please see our 8 November flash note).