RIYADH: Chinese investors showed strong interest in Saudi equities as two new exchange-traded funds focused on the Kingdom’s stocks debuted in Shanghai and Shenzhen.
The feeder funds, operating under the Qualified Domestic Institutional Investor program, began trading on July 16, with both briefly hitting the 10 percent daily limit on their launch day.
The first fund, CSOP Saudi Arabia ETF QDII, managed by China Southern Asset Management, is listed on the Shenzhen Stock Exchange after raising 634 million Chinese yuan ($87 million).
The second fund, the Huatai-PineBridge managed CSOP Saudi Arabia ETF QDII, started trading on the Shanghai Stock Exchange after raising 590 million Chinese yuan, Bloomberg reported.
The new offerings mark a significant step in the deepening economic ties between China and Saudi Arabia, allowing mainland investors to diversify their portfolios with exposure to the Kingdom’s stock market.
This comes as investor relations between the two nations flourish with China becoming the top greenfield foreign direct investor in Saudi Arabia with investments amounting to $16.8 billion in 2023, a 1,020 percent rise from the previous year.
The two ETFs indirectly invest in the Kingdom’s stock market through the CSOP Saudi Arabia ETF, which was listed on the Hong Kong Stock Exchange, marking the first Saudi Arabia-focused ETF in the Asia-Pacific region.
Following their approval from the China Securities Regulatory Commission last month, these funds are designed to facilitate greater international diversification for Chinese investors, particularly in sectors where Saudi Arabia has considerable influence, such as energy and oil.
“People will pay more attention to Saudi Arabia looking at the energy and financial sector compared with US or Japan investment options,” Mao Wei, chief equity investment officer at China Southern Asset Management Co., told Bloomberg.
Mainland investors will find it easier to build exposure to Saudi stocks using the funds as they can invest in yuan and find information in Chinese, according to Melody Xian He, deputy chief executive officer at CSOP Asset Management.
About 20,000 individuals and funds took allocations in the ETFs during an offer period of seven days, she said in an interview.
As investment links between China and Saudi Arabia deepen, Hong Kong could be “the largest beneficiary of the Saudi China ETF connect program because ETFs that are listed in Saudi Arabia and mainland China could feed back into the Hong Kong ETF,” said Rebecca Sin, an analyst at Bloomberg Intelligence in Hong Kong.
“The next step of the Saudi China ETF Connect could be that Saudi Arabia asset managers launch a feeder fund,” she added.
This fund tracks the FTSE Saudi Arabia Index and counts the Kingdom’s sovereign wealth fund among its major investors.
The Saudi China ETF program aims to facilitate the cross-listing of funds in both countries and the launch of feeder funds, further cementing financial cooperation between the two nations amidst evolving geopolitical landscapes.
