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New Industry Classification


WHY ARE WE INTRODUCING A NEW CLASSIFICATION STANDARD?

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. The new classification system adopted by Tadawul provides solution to these limitations  by closely aligning a company’s business activities and sources of revenues to its sector classification.

Tadawul’s previous sector classification had limitations as it was not based on global classification standards. Furthermore, there were no periodic reviews of companies to reflect changes in the assigned classification due to any change in business profile of these companies. 

ADVANTAGES OF ADOPTING THE GLOBAL CLASSIFICATION STANDARDS

 

GLOBAL INDUSTRY CLASSIFICATION STANDARD (GICS)

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 standard 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

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.  

GICS STRUCTURE AND METHODOLOGY

GICS is a 4 tiered, hierarchical classification system, consisting of 11 Sectors (Level 1), 24 Industry Groups (Level 2), more than 60 Industries (Level 3) & more than 150 Sub-Industries (Level 4), as presented below. 

 

Level 1 Level 2 Level 3 Level 4
SECTOR INDUSTRY GROUP INDUSTRY SUB-INDUSTRY
Energy Energy Energy Equipment & Services Oil & Gas Drilling
Oil & Gas Equipment & Services
Oil, Gas & Consumable Fuels Integrated Oil & Gas
Oil & Gas Exploration & Production
Oil & Gas Refining & Marketing
Oil & Gas Storage & Transportation
Coal & Consumable Fuels
Materials Materials Chemicals Commodity Chemicals
Diversified Chemicals
Fertilizers & Agricultural Chemicals
Industrial Gases
Specialty Chemicals
Construction Materials Construction Materials
Containers & Packaging Metal & Glass Containers
Paper Packaging
Metals & Mining Aluminium
Diversified Metals & Mining
Copper
Gold
Precious Metals & Minerals
Silver
Steel
Paper & Forest Products Forest Products
Paper Products
Industrials Capital Goods Aerospace & Defense Aerospace & Defense
Building Products Building Products
Construction & Engineering Construction & Engineering
Electrical Equipment Electrical Components & Equipment
Heavy Electrical Equipment
Industrial Conglomerates Industrial Conglomerates
Machinery Construction Machinery & Heavy Trucks
Agricultural & Farm Machinery
Industrial Machinery
Trading Companies & Distributors Trading Companies & Distributors
Commercial & Professional Services Commercial Services & Supplies Commercial Printing
Environmental & Facilities Services
Office Services & Supplies
Diversified Support Services
Security & Alarm Services
Professional Services Human Resource & Employment Services
Research & Consulting Services
Transportation Air Freight & Logistics Air Freight & Logistics
Airlines Airlines
Marine Marine
Road & Rail Railroads
Trucking
Transportation Infrastructure Airport Services
Highways & Railtracks
Marine Ports & Services
Consumer Discretionary Automobiles & Components Auto Components Auto Parts & Equipments
Tires & Rubber
Automobiles Automobile Manufacturers
Motorcycle Manufacturers
Consumer Durables & Apparel Household Durables Consumer Electronics
Home Furnishings
Homebuilding
Household Appliances
Housewares & Specialties
Leisure Products Leisure Products
Textiles, Apparel & Luxury Goods Apparel, Accessories & Luxury Goods
Footwear
Textiles
Consumer Services Hotels, Restaurants & Leisure Hotels, Resorts & Cruise Lines
Leisure Facilities
Restaurants
Diversified Consumer Services Education Services
Specialized Consumer Services
Media Media Advertising
Broadcasting
Cable & Satellite
Movies & Entertainment
Publishing
Retailing Distributors Distributors
Internet & Direct Marketing Retail Internet & Direct Marketing Retail
Multiline Retail Department Stores
General Merchandise Stores
Specialty Retail Apparel Retail
Computer & Electronics Retail
Home Improvement Retail
Specialty Stores
Automotive Retail
Homefurnishing Retail
Consumer Staples Food & Staples Retailing Food & Staples Retailing Drug Retail
Food Distributors
Food Retail
Hypermarkets & Super Centers
Food, Beverage Beverages Soft Drinks
Food Products Agricultural Products
Packaged Foods & Meats
Household & Personal Products Household Products Household Products
Personal Products Personal Products
Health Care Health Care Equipment & Services Health Care Equipment & Supplies Health Care Equipment
Health Care Supplies
Health Care Providers & Services Health Care Distributors
Health Care Services
Health Care Facilities
Managed Health Care
Health Care Technology Health Care Technology
Pharmaceuticals, Biotechnology & Life Sciences Biotechnology Biotechnology
Pharmaceuticals Pharmaceuticals
Life Sciences Tools & Services Life Sciences Tools & Services
Financials Banks Banks Diversified Banks
Regional Banks
Thrifts & Mortgage Finance Thrifts & Mortgage Finance
Diversified Financials Diversified Financial Services Other Diversified Financial Services
Multi-Sector Holdings
Specialized Finance
Consumer Finance Consumer Finance
Capital Markets Asset Management & Custody Banks
Investment Banking & Brokerage
Diversified Capital Markets
Financial Exchanges & Data
Mortgage Real Estate Investment (REITs) Mortgage REITs
Insurance Insurance Insurance Brokers
Life & Health Insurance
Multi-line Insurance
Property & Casualty Insurance
Reinsurance
Information Technology Software & Services Internet Software & Services Internet Software & Services
IT Services IT Consulting & Other Services
Data Processing & Outsourced Services
Software Application Software
Systems Software
Home Entertainment Software
Technology Hardware & Equipment Communications Equipment Communications Equipment
Technology Hardware, Storage & Peripherals Technology Hardware, Storage & Peripherals
Electronic Equipment, Instruments & Components Electronic Equipment & Instruments
Electronic Components
Electronic Manufacturing Services
Technology Distributors
Semiconductors & Semiconductor Equipment Semiconductors & Semiconductor Equipment Semiconductor Equipment
Semiconductors
Telecommunication Services Telecommunication Services Diversified Telecommunication Services Alternative Carriers
Integrated Telecommunication Services
Wireless Telecommunication Services Wireless Telecommunication Services
Utilities Utilities Electric Utilities Electric Utilities
Gas Utilities Gas Utilities
Multi-Utilities Multi-Utilities
Water Utilities Water Utilities
Independent Power and Renewable Electricity Producers Independent Power Producers & Energy Traders
Renewable Electricity
Real Estate Real Estate Equity Real Estate Investment Trusts (REITs) Diversified REITs
Industrial REITs
Hotel & Resort REITs
Office REITs
Health Care REITs
Residential REITs
Retail REITs
Specialized REITs
Real Estate Management & Development Diversified Real Estate Activities
Real Estate Operating Companies
Real Estate Development
Real Estate Services

The GICS methodology aims to enhance the investment research and asset management process for financial professionals worldwide. 

Companies are allocated to Sub-Industries. Sub-Industries are grouped into Industries in such a way that general industrial and economic themes are common to all companies in the Industry. The Industries themselves will be aggregated into Industry Groups, which are in turn aggregated into Sectors.

GICS classification approach is both quantitative and qualitative. Each company is classified in the Sub-Industry whose definition describes the main business activities that generate the majority of the company’s revenues.

The primary source of information used to classify a company is its Annual Reports/ Financial Statements. New companies are classified according to the activities mentioned in the prospectus.

NEW TADAWUL MARKET STRUCTURE

Tadawul ‘s listed equities were previously classified into 16 sectors; however, current Tadawul’s market structure has 20 sectors (Industry Groups), representing Level 2 under GICS hierarchical classification system.

These 20 sectors (Industry Groups under GICS at Level 2), representing the distribution of current listed companies, are presented as follows:

1 Energy
2 Materials
3 Capital Goods
4 Commercial & Professional Svc
5 Transportation
6 Consumer Durables & Apparel
7 Consumer Services
8 Media
9 Retailing
10 Food & Staples Retailing
11 Food & Beverages
12 Health Care Equipment & Svc
13 Pharma, Biotech & Life Science
14 Banks
15 Diversified Financials
16 Insurance
17 Telecommunication Services
18 Utilities
19 REITs
20 Real Estate Mgmt & Dev't

FAQ

What is the Global Industry Classification Standard (GICS)?

The Global Industry Classification Standard (GICS) was developed by Morgan Stanley Capital International (MSCI) and Standard and Poor’s (S&P) in 1999 in response to the global financial community’s need for a reliable, complete and standard industry classification system. The GICS methodology is widely accepted as the industry analysis framework for investment research, portfolio management and asset allocation. Its universal approach to industries worldwide has contributed to increased transparency and efficiency in the investment process. The GICS has become an industry model widely recognized by market participants worldwide.The GICS structure has four levels of detail: 11 sectors, 24 industry groups, more than 60 industries, and more than 150 sub-industries.

Why is this global classification system important?

The GICS was developed and is maintained by two leading global index providers. It has been specifically designed to classify companies globally – in both developed and developing economies. The GICS is designed to meet the needs of the investment community for a classification system that reflects a company’s financial performance. GICS provides global coverage of over 44,000 + active, publicly traded companies.

Who uses the GICS and how pervasive is the GICS in the international investment community?

There has been significant adoption of the GICS standard across all major groups involved in the investment process, including: Asset Managers, Brokers (institutional and retail), Consultants, Research, and Stock Exchanges. Globally the Investment community uses the GICS across the full spectrum of equity market management – including asset management, sector research, portfolio strategy, peer analysis, and client account reporting. The use of the GICS enables market participants to identify and analyze companies using a common global standard.

Which particular advantages do strategists, analysts and investors draw upon in applying the GICS across their analysis and global benchmark selection?

The use of this global standard helps strategists, analysts and investors compare companies outside of their local markets.The GICS establishes a common standard that enables asset owners, asset managers and investment research specialists to make local and global comparisons by sectors. The standardized classification system permits foreign investors to look into local markets and local investors to look out at the rest of the world when comparing stocks within the same sector. The GICS defines peer groups tightly and avoids grouping unlike companies together.

What does it mean that GICS is a "market-oriented" classification system? Why does that matter?

There are two approaches to industry classification: production-oriented and market-oriented. The emergence of the service era and the availability of global communications have changed the market focus from producers to consumers. In today’s economy, for example, drawing the line between goods and services is increasingly difficult and arbitrary, as almost all goods are sold with a service. Thus, the distinction between consumer goods and services has been replaced by the more market-oriented sectors of “Consumer Discretionary” and “Consumer Staples,” which both contain goods and services sub-industries.

Describe the hierarchical categories of the GICS.

The GICS structure currently has four levels of detail: 11 sectors, 24 industry groups, more than 60 industries, and more than 150 sub-industries. Since the classification is hierarchical, at each of the four levels a company can only belong to one grouping.

How companies are allocated to its relevant sectors?

Companies are allocated to Sub‐Industries according to the definition of its principal business activity that generate the majority of the company’s revenues. Sub‐Industries are grouped into Industries in such a way that general industrial and economic themes are common to all companies in the Industry. The Industries themselves are aggregated into Industry Groups, which in turn are aggregated into Sectors.

How frequently are companies reviewed for potential GICS changes and how often does a company's GICS classification generally change?

Companies are reviewed annually upon publishing their annual reports to ensure that a company’s allocation is still relevant to its main line of business. Companies are also under constant surveillance for corporate actions. In general, a company’s classification will change owing to either changes in revenue sources or due to a major corporate action that redefines a company's primary line of business.

How adaptable is the GICS structure over time to Economic Changes?

The four-level GICS structure reflects equities in today’s global investment environment, yet is flexible enough to capture tomorrow’s developments. As the global economy changes, sectors, industry group, industries and sub-industries can be added or divided.

How will Tadawul’s Equity Market look like after the GICS adoption?

Previously Tadawul equity market consisted of 16 Sectors. After the GICS adoption Tadawul equity market will be based on 20 Industry Groups, which is Level 2 (Industry Group) in GICS hierarchical classification system.

 How will New Sector Indices be created?

New Tadawul Sector Indices will be created based on GICS  Level 2 (Industry Group). The base date will be 8th of January. Pre Open value for New Sector Indices will be 5000 points (Base Value), to allow for better performance comparability given one unified starting point. For more info availability, New Sectors Indices will have a calculated history for 1 year backwards. As they are new, Change and Change % for New Sector Indices will start being published on the 2nd day of the creation of these indices.

What will happen to Tadawul’s old Sector indices?

Old sector indices will be discontinued. However, historical values will still be available for any historical analysis. 

Will Tadawul equity market be mapped to all 4 GICS levels?

Yes, however, only sector (Level 1) and industry groups (Level 2) will be published on the website.