Chart 49: Saudi ERR’s are showing signs of inflecting despite one of the most protracted periods of earnings downgrades. 2 160 if 140 16 4 More upgrades than downgrades f 120 1.4 1.2 100 \ 1 | v \ J : 80 0.8 4 \ 60 0.6 40 0.4 More downgrades than upgrades 0.2 4 20 0 0 = S o — a a ————ERR (LHS) —==Brent Crude (US$/bblI- RHS) Source: DataStream, |/B/E/S, Bloomberg, BofA Merrill Lynch Global Research Off benchmark and out of mind? Growing confidence could drive rerating With Saudi Arabia remaining off benchmark (it is not currently part of any major indices such as the MSCI EM or FM), GEM funds allocation to Saudi Arabia remains relatively low at just 0.25% (of total GEMs AUM). Whilst allocation levels are relatively high versus history, they are still significantly below the levels implied by MSCI EM inclusion (1.4%) or suggesting a level of apathy towards the market. Chart 50: GEM fund allocation in Saudi (asset-weighted)* 0.35 % ———= GEM funds, allocation in Saudi MSCI Saudi market cap as % of MSCI EM (rhs) %r 16 0.30 14 0.25 12 10 0.20 8 0.15 6 0.10 | 4 0.05 2 0.00 0 06 07 08 09 10 11 12 13 14 15 16 Source: EPFR, BofA Merrill Lynch Global Research.*Market cap as % of MSCI EM represents and artificially constructed benchmark weight assuming that this market was a member of MSCI EM index With the NTP looking to diversify the Saudi economy away from the oil sector (and reduce its reliance on a higher oil prices), we believe confidence in the longer term economic outlook could improve, ultimately driving earnings momentum and a market rerating. Given our view that crude oil prices will likely post growing momentum in 2017, moving substantially above USS50/bbl, even a partial success of the NTP program would likely be sufficient to improve market confidence. CMA reforms (likely linked to the NTP), a potential catalyst for market rerating Furthermore, reforms being introduced by the Saudi Capital Markets Authority (CMA) to attract greater foreign participation in the Sau