Most emerging markets are struggling this year, thanks to rising rates in the US and a strengthening dollar. Saudi Arabia is an exception. The iShares MSCI Saudi Arabia ETF (KSA - Free Report) is the best performing single country ETF, up about 22% year-to-date.

Recently Saudi Arabia was promoted by MSCI to emerging market status. The index provider will include it in the MSCI Emerging Markets Index, following a two-step inclusion process in May and August next year. Earlier in March, FTSE had upgraded Saudi Arabia.

The Saudi stock exchange— Tadawul -- is the Arab world’s largest stock market with a market capitalization of about $520 billion. The upgrades would result in billions of foreign inflows into the Saudi stock market.

MSCI mentioned that international investors were impressed by “the speed of change in the accessibility of the Saudi Arabian equity market and the level of commitment that the Capital Market Authority (CMA) and the Saudi Stock Exchange (Tadawul) have demonstrated.”

Saudi Arabia will initially have a weight of 2.6% in the MSCI Emerging Markets Index, which will likely go up after state-owned oil giant Aramco’s IPO. Aramco is estimated to be worth $2 trillion and its IPO, likely to be about $100 billion, would be the largest in history.

Saudi Arabia is one of the richest countries in the world and the government is trying to reduce its dependence on oil, which currently accounts for 43% of GDP.

In addition to financial reforms, the country is undergoing major cultural changes such as allowing women to drive.

KSA is a market cap weighted ETF with an expense ratio of 74 basis points. Its assets have gone up by 1,700% this year, making it one of the fastest growing ETFs.

Financials and materials dominate the ETF whereas energy accounts for a small fraction as of now, but that would change after Aramco’s IPO.