Saudi ETFs make winning China debut as financial ties with Middle East strengthen
Two exchange-traded funds (ETFs) that track Saudi Arabia's biggest companies including Saudi Aramco made winning debuts in mainland China on Tuesday, underscoring the strengthening ties between financial markets in China and the Middle East.
The two feeder funds, managed by China Southern Asset Management and Huatai-PineBridge Investment, were snapped up by mainland investors, with both briefly hitting the 10 per cent daily limit on their first day of trading.
The combined trading turnover neared 5 billion yuan (US$690 million) before the funds closed up 7.9 percent and 7.8 percent in Shenzhen and Shanghai, respectively. The broader market, tracked by the CSI 300 Index, added 0.6 percent.
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The two cross-listed ETFs, which raised a combined 1.2 billion yuan, invest in the Middle East market through a master fund: Hong Kong-domiciled CSOP Saudi Arabia ETF. They operate under the Qualified Domestic Institutional Investor (QDII) programme, which allows institutional investors to invest in foreign securities within a prescribed quota.
"The ETFs offer Chinese investors convenient access to markets that were previously difficult to reach," said Shuiyang Pan, portfolio manager of the Saudi ETF at China Southern Asset Management. "They can now directly invest in the Middle Eastern stock market through the Saudi Arabia ETF, without facing obstacles like opening overseas accounts, complying with complex regulations and handling currency exchanges."
CSOP's Saudi ETF, the first of its kind in Asia, listed in Hong Kong in November with Public Investment Fund being an anchor investor in the ETF. It tracks the FTSE Saudi Arabia Index, which had a market capitalisation of US$303.5 billion at the end of May. Al Rajhi Banking, Saudi National Bank, Saudi Aramco, ACWA Power and Saudi Basic Industries are the top five constituents, making up 43 per cent of the index's weighting.
The two cross-listings of the Hong Kong-domiciled fund offer Asia's largest investor base direct access to Saudi Arabia's "exciting growth story", said Suvir Loomba, global head of custody and interim regional head of securities services for Asia at HSBC, which is a partner of CSOP's Saudi ETF.
"Through Hong Kong, today's ETF listings connect the Middle East's fast-growing capital markets to Asia's deep liquidity pools, setting a strong precedent for diversification among China's onshore investors," he said.
The launch of the ETFs comes as China and Saudi Arabia continue to strengthen financial collaboration, creating more products that allow investors to tap each other's capital markets. An ETF tracking Hong Kong's benchmark Hang Seng Index is also in the works, which could offer Middle East investors exposure to some of the biggest companies in China and Hong Kong.
The ETFs also help Chinese investors increase the diversity of their asset allocation globally to reduce overall risk, Pan said in a statement.
"More related ETF products may come to the market in the future to meet with Chinese investors' growing interest in the Middle Eastern market," he added.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.
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