Saudi Arabia’s Groundbreaking ETFs: A New Era for Middle Eastern Investors
Introduction
In a significant development for the Middle Eastern financial landscape, Saudi Arabia is set to launch its first exchange-traded funds (ETFs) that track Hong Kong-listed shares, predominantly featuring Chinese firms. This initiative, which kicks off on October 31, 2023, on the Saudi Stock Exchange, is poised to become the largest such fund in the region, marking a pivotal moment in the intersection of Middle Eastern and Asian markets.
A Historic Launch
The ETFs, issued by Albilad Capital in partnership with Hong Kong’s CSOP Asset Management, have already garnered over $1.2 billion in initial investments. This impressive figure not only highlights the strong demand for diversified investment opportunities but also positions these ETFs to surpass the current largest Islamic ETF, the Al Rayan Qatar ETF, listed on the Qatar Exchange.
The Albilad CSOP MSCI Hong Kong China Equity ETF is designed to be sharia-compliant, allowing investors to engage with the dynamic growth of China while adhering to Islamic financial principles. The fund will invest in 30 stocks through a Hong Kong-listed ETF that tracks the MSCI HK China Connect Select Index, which has shown resilience and potential for growth.
Investment Opportunities in a Growing Market
The top three holdings of the ETF include major players in the Chinese market: Meituan, a leading delivery platform; Techtronic Industries, a manufacturer of power tools; and Anta Sports, a prominent sportswear maker. These companies represent a cross-section of China’s burgeoning economy, offering Middle Eastern investors a unique opportunity to tap into the growth of the world’s second-largest economy.
Zaid AlMufarih, the CEO of Albilad Capital, emphasized the significance of this product, stating, "It opens a new avenue for investors to engage with the dynamic growth of China through Hong Kong, all while adhering to Sharia principles." This sentiment reflects a broader trend of increasing financial collaboration between Arab nations and China, as both regions seek to capitalize on their respective economic strengths.
A Broader Trend in ETF Offerings
In addition to Albilad’s ETF, another product, the SAB Invest Hang Seng Hong Kong ETF, is set to launch shortly after, further expanding the range of investment options available to Saudi investors. This surge in ETF offerings underscores a growing recognition of the potential value in Chinese markets, particularly as they recover from recent underperformance.
Gary Dugan, CEO of the Global CIO Office in Dubai, noted that the launch of these ETFs signals a potential for value, especially for investors in the MENA region who are willing to look beyond geopolitical tensions. The MSCI HK China Connect Select Index has rebounded sharply, gaining 12% in the first nine months of the year, driven by stimulus measures from the Chinese government aimed at revitalizing the economy.
Strengthening Ties Between Regions
The launch of these ETFs is not just a financial maneuver; it represents a broader strategy to strengthen economic ties between the Middle East and Asia. Last November, Hong Kong introduced Asia’s first ETF tracking Saudi equities, the CSOP Saudi Arabia ETF, and has been actively pursuing cross-listing opportunities in both regions.
Hong Kong’s Financial Secretary, Paul Chan Mo-po, recently led a delegation to Riyadh to attract new sources of capital, highlighting the mutual benefits of such collaborations. Chan remarked that the listing of Hong Kong ETFs in the Saudi market creates a win-win situation for both sides, paving the way for enhanced economic cooperation.
Conclusion
The introduction of Saudi Arabia’s first ETFs tracking Hong Kong-listed shares marks a transformative moment for investors in the Middle East. With significant initial investments and a focus on sharia-compliance, these funds not only provide access to the dynamic Chinese market but also symbolize a growing partnership between Arab nations and Asia. As the financial landscape continues to evolve, these ETFs could serve as a catalyst for further investment opportunities and economic collaboration in the years to come.