Hong Kong-Saudi ETF Launch to Boost Market

Key Takeaway

• Hong Kong seeks to revive its stock market by partnering with Saudi Arabia, aiming to attract investments and new listings.
• The initiative includes the launch of the CSOP Saudi Arabia ETF in Hong Kong, despite modest funds attracted since inception.
• This partnership reflects mutual economic growth ambitions, amidst Hong Kong's geopolitical challenges and Saudi's Vision 2030 goals.

Hong Kong Seeks Saudi Partnership

Hong Kong is actively seeking to bolster its financial market through a strategic partnership with Saudi Arabia, aiming to attract new investments and stock listings. This initiative is highlighted by a conference co-organized by the Saudi Tadawul Group and Hong Kong Exchanges & Clearing Ltd., which aims to connect Saudi company officials with Asian investors. Analyst Edmond Christou of Bloomberg Intelligence notes a strong political will driving the relationship between China, including Hong Kong, and Gulf countries, with Chinese businesses expressing interest in Middle Eastern investments.

Challenges and Opportunities

Hong Kong's financial market has faced significant challenges in recent years, including a sluggish Chinese economy and geopolitical tensions with the United States. These factors have led to a decrease in investor interest and a slump in funds raised through initial public offerings (IPOs), with the first quarter seeing the lowest level since 2009. In contrast, Saudi Arabia's market has experienced growth, with the Saudi stock market's capitalization increasing by 11% over the past three years. This growth is part of Crown Prince Mohammed bin Salman's Vision 2030 agenda, which aims to increase foreign ownership and liquidity in the kingdom's publicly traded stocks.

Investment Vehicles and Market Exposure

The CSOP Saudi Arabia ETF, the first of its kind in Asia, was launched to provide investors in Hong Kong with exposure to the Saudi market. Despite its backing by Saudi Arabia’s sovereign wealth fund and over $1 billion in assets, the ETF has attracted relatively modest funds since its inception. Efforts are underway to cross-list the ETF in Shanghai, which could potentially increase investment flows. Hong Kong Exchanges & Clearing CEO Bonnie Chan and her predecessor have emphasized the opportunities to connect with capital hubs in the Middle East, indicating a strategic focus on diversifying investor bases.

Economic Implications and Future Prospects

The partnership between Hong Kong and Saudi Arabia presents a mutual opportunity for economic growth and increased market exposure. While Hong Kong aims to revitalize its stock market by attracting foreign investments, Saudi Arabia seeks to enhance its global financial footprint as part of its economic diversification efforts. The potential dual-listing of Saudi Aramco in Hong Kong, although not imminent, would symbolize a significant vote of confidence in the city's financial market. Both regions are navigating their unique economic challenges, with Hong Kong facing geopolitical uncertainties and Saudi Arabia adjusting to oil market dynamics.

Street Views

• Edmond Christou, Bloomberg Intelligence (Neutral on the relationship between China and Gulf countries):

  "There is strong political will that is pushing for this relationship between China and Gulf countries... When you talk to businesses in China, you hear that clients are interested in investing in the Middle East. They are looking for ways to make that happen."

Management Quotes

• Bonnie Chan, CEO of Hong Kong Exchanges & Clearing:

  "Considerable opportunities to connect with the fast-growing capital hubs of Southeast Asia and the Middle East."

• Melody Xian, Deputy Chief Executive Officer at CSOP Asset Management Ltd.:

  "Chinese investors are aware of the Middle East opportunities, but I think that, for most of them, it’s hard to differentiate Saudi Arabia versus other markets."

• Nayef Al Athel, Chief Sales and Marketing Officer at Saudi Tadawul Group:

  "There are a lot of synergies between Saudi Arabia and Hong Kong... We have the ambition to connect capital from east to west and we have to start somewhere."