Saudi Arabia could become the ninth largest country on the MSCI Emerging Market index if it wins inclusion in 2019, attracting billions of dollars of inflows, according to analysts.

On Wednesday, index provider MSCI announced the addition of Saudi Arabia to the 2018 annual review cycle for potential inclusion in the MSCI Emerging Markets index the following year.

The Tadawul stock exchange jumped 5.5 percent on the announcement – although analysts said this could also have been due to news of Mohammed Bin Salman’s promotion to Crown Prince.

Analysts said the MSCI news was a further positive development for the country but warned that Saudi Arabia has more work to do to modernise its equity market.

A paper from Capital Economics said a listing on the MSCI Emerging Market index would help the kingdom to attract potential inflows of more than $38 billion.

“If upgraded, MSCI has estimated that Saudi Arabia would have a weight of around 2.4 percent,” it said. “Given that around $1.6trn of assets under management track the MSCI EM Index, this could translate into inflows of more than $38bn – equal to around 6 percent of [Saudi Arabia’s] GDP.

“To put this into perspective, inflows on this scale would have funded the current account deficit last year one-and-a-half times over.”

The paper noted that foreign ownership of Saudi equities is currently low at 4 percent, and said an emerging market listing would significantly boost this percentage.

Daniel Salter, head of equity strategy and head of research, Eurasia, at Renaissance Capital, said the kingdom could become the ninth largest country in the index if emerging market status was achieved.

“Using the provisional list of constituents and latest prices, we estimate that Saudi Arabia could have a weight of 2.5 percent in MSCI EM, making it the ninth-largest country in the index and the third largest in EMEA [Europe, Middle East and Africa],” he said.

Fawad Tariq Khan, general manager of SHUAA Capital, said: “Saudi’s inclusion in the MSCI emerging markets stock index will be a welcome boost for capital markets in the region.

“The kingdom’s potential upgrade to emerging market status in 2019 will give access to more international investors and bring greater liquidity to the region’s largest market.

“This will benefit the local banks and financial services’ industry in addition to supporting the kingdom’s 2030 vision to diversify the economy away from oil. It’s a welcome move for Saudi and will have a positive impact for the wider Gulf region.”

Last year, the Tadawul did not make the review list despite having announced a string of reforms intended to achieve emerging market (EM) status.

MSCI said at the time it would “continue to monitor the positive evolution in the opening of the Saudi Arabian equity market for international institutional investors”.

Renaissance Capital’s Salter said: “MSCI’s decision will rest on whether foreign investors feel the current level of opening is sufficient, given the 49 percent foreign ownership limits and investor qualification requirements (which have admittedly become less strict).

“In addition, some of the market framework changes, such as stock lending and short-selling, have yet to be tested.”