Other BriefingsSaudi Mutual Fund Opens Doors to Chinese Investors for the First Time
U.S.-backed Huatai-PineBridge Fund Management Co. Ltd. has applied to establish the first mutual fund accessible to Chinese mainland investors, tracking the Saudi Arabian stock market and marking a potential milestone in cross-border investment.
A U.S.-backed fund manager has applied for what could potentially become the first mutual fund accessible to Chinese mainland investors tracking the Saudi Arabian stock market.
On December 13, 2023, the China Securities Regulatory Commission received an application from Huatai-PineBridge Fund Management Co. Ltd. to establish a mutual fund designed to invest in the CSOP Saudi Arabia ETF, an exchange-traded fund (ETF) listed in Hong Kong that tracks the movements of the FTSE Saudi Arabia Index.
If approved, the mutual fund will engage with the CSOP Saudi Arabia ETF through the Qualified Domestic Institutional Investor (QDII) program, which facilitates qualified mainland institutional investors in trading offshore securities, paving the way for a potential landmark development in cross-border investment.
CSOP Asia Pacific EFT
Launched in November to track the Middle Eastern stock market, the Hong Kong-based CSOP Asia Pacific EFT is the first exchange-traded fund in Asia to concentrate on shares listed in Riyadh – a market that has witnessed a 6 percent growth in 2023.
The fund, designed to mirror the FTSE Saudi Arabia Index (FTSE Index) and open to international investors, operates in Saudi riyals. The disclosed net asset value, as of November 28, 2023, stood at approximately HK$76.92 or RMB 70.64, as outlined in an official exchange filing. HSBC Institutional Trust Services serves as the fund’s trustee.
CSOP’s Saudi ETF indirectly replicates the 56 stocks listed on the FTSE index. As of October 31, these stocks collectively held a market capitalization of US$276.8 billion. The top five constituents of the index, namely Al Rajhi Banking, Saudi Aramco, Saudi National Bank, Saudi Basic Industries, and Saudi Telecom, make up 45 percent of the index weightage.
The CSOP Asian Pacific EFT stands out as the largest of its kind to trade in the city this year, with assets exceeding US$1 billion and Saudi Arabia’s sovereign fund ranking among its prominent investors. It also features Saudi Aramco, the oil giant, securing the position of its second-largest holding. The fund is characterized as “very financially heavy,” aligning with the preferences of Hong Kong investors.
Regional collaboration and cross-listing
Saudi Arabia is the world’s largest oil exporter and its economy grew by 8.7 percent in 2022, to reach over US$1 trillion. The government is now trying to reduce its reliance on oil income, fostering investment in other sectors, such as healthcare, infrastructure, and tourism.
To do so, the country has been actively seeking partnerships with Asian economies, strategically aiming to expand its energy sources beyond oil and boost economic diversification, as outlined in its national Vision 2030 plan unveiled in 2016. The plan prioritizes, among others, the promotion of private businesses, the attraction of foreign investment, and the facilitation of social change.
Between December 7-8, 2023, Yasir Al-Rumayyan, the governor of Saudi Arabia’s Public Investment Fund (PIF), took part in the Future Investment Initiative PRIORITY Summit in Hong Kong. In opening remarks on Hong Kong Chief Executive John Lee called the gathering “yet another significant step forward, in the deepening ties between Hong Kong and the Middle East, particularly the Kingdom of Saudi Arabia.”
With assets surpassing US$700 billion, the PIF is considering opening offices in mainland China and India, following the establishment of those in Hong Kong, New York, and London in 2022.
In a recent visit to Saudi Arabia, Hong Kong Exchanges & Clearing’s CEO Nicolas Aguzin, highlighted the expansive potential for collaboration between the Middle East and Hong Kong. The prospect of cross-listings and increased capital flows emerges as key areas of focus.
Experts emphasized the contribution of Hong Kong’s capital market in generating funds for technology development in renewable energy and sustainability projects for Middle East nations and companies, which, in turn, underscores the pivotal role that Hong Kong’s financial sector can play in assisting the Middle East’s shift toward sustainability.
As such, meetings as the Future Investment Initiative PRIORITY Summit in Hong Kong serve as key platforms for nurturing partnerships and directing investments into technology and sustainability initiatives.
China-Saudi Arabia agreement
Earlier in September, the Shanghai Stock Exchange and the operator of the Saudi Arabian bourse, Saudi Tadawul Group, signed a memorandum of understanding (MoU) to strengthen ties in the financial sector. The MoU, finalized during a visit by a Shanghai exchange delegation to Saudi Arabia, outlines collaboration in specific fields, including:
- Cross-listings;
- Financial technology (fintech);
- Environmental, social, and governance (ESG); and
- Data exchange.
The partnership aims to enhance connectivity between Saudi Arabia and China, encouraging companies in both nations to consider cross-listing, while also reflecting the warming relations between Beijing and Riyadh, following Chinese President Xi Jinping’s visit in December 2022, and aligning with China’s role as the largest trading partner of the Arab world (with Saudi Arabia accounting for a significant portion of this trade).
In light of this, closer financial ties are viewed as beneficial for both nations, with Chinese firms seeking alternative fundraising channels amid turbulent US ties and Saudi Arabia working to diversify its economy under Vision 2030.
Dezan Shira & Associates assist foreign investors into Dubai. For assistance please contact us at dubai@dezshira.com and review our pertinent articles below.
