Saudi Arabia's official inclusion on the MSCI emerging markets index is a reflection of strong investor confidence in the country's economy, the chief executive of the Saudi stock exchange said Thursday.
"This is a very important milestone because it just gives us the recognition by international investors," Khalid Al Hussan, who heads the exchange — also known as Tadawul — told CNBC's Hadley Gamble in Riyadh.
The announcement, made Wednesday, caps off a speedy 12-month exchange joining process that normally takes three to four years, the CEO said. This represented a first for the MSCI, and is expected to bolster Saudi equities.
The Saudi equity market will now represent 2.6 percent of the MSCI index, which in total is worth $1.9 billion, meaning the Saudi market's weight will be around $45 billion.
"That pool has both active and passive investors, we anticipate the passive investors to be around 25 to 30 percent, so guaranteed inflows of cash we forecast to be around $10 billion," Al Hussan said.
"This is the size of the Saudi market represented in emerging markets, guaranteed inflow of passive funds of $10 billion, and we'll work very hard with the active investors to attract the remaining investments."
The joining comes as investors await the listing of Saudi's state-owned oil giant Aramco, which would likely become the largest publicly-traded company in the world. But the Islamic kingdom's inclusion in the emerging markets index isn't associated with the Aramco listing, Al Hussan said.
"The inclusion itself isn't that related to a particular listing. However, Aramco helped attract extra eyes by investors to the Saudi market, the reforms have attracted the rest of investors, and it will add a lot of the capacity of the Saudi capital markets," he said.
Tadawul joined the FTSE global equity index series last March and hopes to be included in the S&P by the end of this year.
"All of these will add capacity, and of course we'd hope our efforts to increase the IPOs, including the Aramco IPO," Al Hussan said, adding that Aramco's valuation — which has been surrounded by much speculation — will depend on the information released by financial advisors.
The news comes amid a sweeping reform drive by the Saudi government to overhaul its economy, diversify away from petroleum revenue dependency and create private sector jobs for a burgeoning youth population.