Hong Kong-focused ETFs to list on Saudi stock exchange

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The first Saudi Arabian exchange-traded funds to invest in Hong Kong’s stock market will list on the local bourse before the end of the year, as authorities seek to strengthen financial links between the two markets.

In a speech at the Bund Summit in Shanghai, Paul Chan, Hong Kong’s financial secretary, confirmed that the government expects “some reciprocal moves” to take place this year, which will include the listing of a pair of ETFs s focused on Hong Kong on the Saudi Stock Exchange.

The first ETF to invest exclusively in the Saudi Arabian stock market was listed on the Hong Kong stock exchange at the end of November last year, attracting initial investment of $1 billion, mainly from institutional investors.

The CSOP Saudi Arabia ETF, which tracks the FTSE Saudi Arabia Index and is the first such ETF with single-country exposure to the Saudi market anywhere in Asia Pacific, has seen its assets reach $1.25 billion since launch.

This article was previously published by Ignites Asia, a title owned by FT Group.

“CSOP is best positioned to list a feeder fund for its Hong Kong ETFs in Saudi Arabia in the second half of 2024,” said Rebecca Sin, a senior Hong Kong ETF research analyst at Bloomberg Intelligence .

In July, CSOP listed Greater China’s first sharia-compliant ETF in Hong Kong, the CSOP MSCI HK China Connect Select ETF.

The fund provides investors with exposure to Hong Kong-listed H-shares and Mainland China A-shares by tracking an index of the largest 30 stocks in the MSCI China and MSCI Hong Kong indices that are available through the Southbound Stock Connect program.

The index adheres to sharia investment principles by excluding businesses classified in approximately 30 industries, including livestock, dairy farms, meatpacking, hunting, packaged frozen foods and alcoholic beverages.

With both mainland Chinese regulators and the Hong Kong government expressing interest in listing ETF products on the Saudi stock exchange, Sin said the CSOP MSCI HK China Connect Select fund “could be a good fit”.

“CSOP could either partner with a local fund manager or apply for a fund license directly,” Sin noted, but she said the latter would be “unlikely and cost prohibitive” for a fund house from Hong Kong.

Sin said a Hong Kong ETF listed in Saudi Arabia could hope to attract up to $100 million in assets with participation from large institutional investors such as Saudi Arabia’s Public Investment Fund, the country’s sovereign wealth fund .

Currently, there are only nine ETFs with a total of $56 million in assets listed on the Saudi stock exchange.

The Saudi bourse has moved quickly to target Asian markets as a source of greater investment to expand its capital markets.

Michael Wong Wai-lun, Hong Kong’s deputy financial secretary, said in May that the city was working with Saudi officials and local financial institutions to launch an ETF that tracks domestic stock indices to strengthen two-way capital flows between the two markets.

*Ignites Asia is a news service published by FT Specialist for professionals working in the asset management industry. Trials and subscriptions are available at ignitesasia.com