Hong Kong-focused ETFs set to list on Saudi exchange

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Saudi Arabia’s first exchange traded funds investing in Hong Kong’s equities market will be listed on the local stock exchange before the end of the year, as authorities try to strengthen financial ties between the two markets.

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

The first ETF investing solely in Saudi Arabia’s equities market was listed on the Hong Kong exchange at the end of November last year, attracting $1bn in initial investment primarily 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 tick up to $1.25bn since launch.

This article was previously published by Ignites Asia, a title owned by the 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 Hong Kong-based senior ETF research analyst at Bloomberg Intelligence.

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

The fund offers investors exposure to Hong Kong-listed H shares and mainland China A-shares by tracking an index of the 30 biggest securities in the MSCI China and MSCI Hong Kong indices that are available via the Southbound Stock Connect programme.

The index adheres to sharia investment principles by excluding business classified in around 30 industries including livestock, dairy farms, meat packing, hunting, packaged frozen foods and alcoholic beverages.

Given that both mainland Chinese regulators and the Hong Kong government have expressed interest in listing ETF products on the Saudi Arabian bourse, Sin said the CSOP MSCI HK China Connect Select fund “could fit the bill”.

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

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

There are currently only nine ETFs with a total of $56mn in assets listed on the Saudi Arabian bourse.

The Saudi exchange has been moving quickly to target Asian markets as a source of greater investment to expand its capital markets.

Michael Wong Wai-lun, deputy financial secretary of Hong Kong, said in May that the city was collaborating with Saudi Arabia officials and local financial institutions to launch an ETF tracking 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