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Saudi ETFs make winning China debut as financial ties with Middle East


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, rose 7.1 per cent and 5.6 per cent in Shenzhen and Shanghai, respectively, after raising a combined 1.2 billion yuan (US$170 million), outperforming the CSI 300 Index, which added 0.2 per cent.

The cross-listed ETFs invest in the Saudi market through the 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. 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 Aramco, 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.”

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.



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