Saudi Arabia Launches Groundbreaking ETFs Tracking Hong Kong-Listed Shares
In a significant development for the financial markets of the Middle East, Saudi Arabia has introduced its first exchange-traded funds (ETFs) that track Hong Kong-listed shares, primarily focusing on Chinese firms. This initiative is poised to create a new investment landscape, enabling Middle Eastern investors to tap into the growth potential of the world’s second-largest economy.
A Historic Launch
The trading of these innovative ETFs commenced on the Saudi Stock Exchange on Wednesday, with an impressive initial capital raise of over $1.2 billion. This launch is spearheaded by Albilad Capital in partnership with Hong Kong’s CSOP Asset Management. Notably, the initial size of these funds is set to surpass that of the current largest Islamic ETF, the Al Rayan Qatar ETF, which is listed on the Qatar Exchange, according to data from the London Stock Exchange Group (LSEG).
Strengthening Ties with China
As diplomatic and economic ties between Arab nations and China continue to strengthen, these ETFs represent a strategic opportunity for investors in the Middle East. They provide a streamlined pathway to access the capital markets of Hong Kong and, by extension, the broader Chinese economy. 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.
Investment Composition
The ETF invests in a diversified portfolio of 30 stocks, tracking the MSCI HK China Connect Select Index. Among its top holdings are notable companies such as Meituan, a leading delivery platform; Techtronic Industries, a manufacturer of power tools; and Anta Sports, a prominent sportswear maker. This selection reflects a strategic focus on sectors poised for growth, aligning with the interests of investors looking for robust returns.
A New Avenue for Investors
Zaid AlMufarih, the CEO of Albilad Capital, emphasized the significance of this product, stating that it "opens a new avenue for investors to engage with the dynamic growth of China through Hong Kong." This sentiment is echoed by Gary Dugan, CEO of the Global CIO Office in Dubai, who noted that despite recent underperformance in Chinese markets, the launch of these ETFs signals potential value for MENA region investors willing to navigate geopolitical challenges.
Market Performance and Future Outlook
The MSCI HK China Connect Select Index has shown resilience, rebounding sharply in September and recording a 12% increase for the first nine months of the year. This growth comes amid a series of stimulus measures introduced by the Chinese government aimed at revitalizing the economy. However, it is important to note that the index has experienced an annualized loss of 17.9% over the past three years, highlighting the volatility and risks associated with investing in this market.
Expanding Investment Opportunities
In addition to the Albilad CSOP MSCI Hong Kong China Equity ETF, another ETF tracking Hong Kong stocks, the SAB Invest Hang Seng Hong Kong ETF, is set to launch on Thursday. This initiative, led by SAB Invest, a subsidiary of Saudi Awwal Bank, further underscores the growing interest in diversifying investment portfolios within the region.
A Collaborative Future
The recent developments are not just beneficial for Saudi investors; they also create opportunities for Hong Kong’s financial markets. Last November, Hong Kong launched Asia’s first ETF tracking Saudi equities, the CSOP Saudi Arabia ETF, and has been actively pursuing cross-listing opportunities. Financial Secretary Paul Chan Mo-po recently led a delegation to Riyadh to attract new capital sources, reinforcing the collaborative spirit between the two regions.
Conclusion
The launch of Saudi Arabia’s first ETFs tracking Hong Kong-listed shares marks a pivotal moment in the evolution of investment opportunities in the Middle East. As these funds gain traction, they are likely to reshape the investment landscape, fostering deeper economic ties between the Arab world and China. With the potential for growth and diversification, these ETFs could become a cornerstone for investors looking to capitalize on the dynamic shifts in the global economy.