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Asia’s first exchange-traded fund to invest solely in Saudi Arabia’s stock market has been indexed on the Hong Kong Stock Exchange, attracting an initial investment of $1 billion, marking one of the largest debuts ever made in the territory.
Saudi Arabia’s CSOP ETF was unveiled with strong government support, after more than a year of high-level efforts by senior Hong Kong officials to try to attract investment from the Middle East.
The ETF invests in a portfolio correlated with the FTSE Saudi Arabia Index, which has a market capitalization of more than $270 billion and aims to align with Saudi Vision 2030, Crown Prince Mohammed bin Salman’s roadmap for economic diversification and engagement.
Its top holdings include Saudi Aramco, the state-owned petroleum and natural gas company, and Al Rajhi Banking & Investment, the country’s largest bank.
This article was previously published through Ignites Asia, a stock owned by FT Group.
The Public Investment Fund, Saudi Arabia’s $700 billion sovereign wealth fund, has been named as the fund’s lead investor. CSOP Asset Management, which manages the ETF, declined to say how much of the initial $1 billion raise came from the PIF, but the investment fund is the “largest key investor” in the product.
CSOP AM, a subsidiary of Hong Kong-based China Southern Fund Management, also plans to expand the potential scope of the fund’s sales by making it available to retail investors in mainland China through an ETF cross-listing.
The release of the Saudi ETF plan comes amid a significant shift by the Hong Kong government to establish closer political ties and attract equity investments from wealthy institutional investors and family offices in the Middle East, and to inspire companies by adding fund companies. to build more links with the region.
In a rare show of desire for the launch of a single ETF product, the board’s rite attracted not only Paul Chan, Hong Kong’s chief financial secretary, but also top executives from the Hong Kong Securities and Futures Commission and the Hong Kong Stock Exchange and Clearing, the deputy chief executive of Hong Kong’s de facto central bank and head of HSBC in Hong Kong.
Upon learning of the bankruptcy of the Saudi-Chinese Businessmen’s Association in Hong Kong in July this year, John Lee, Hong Kong’s top executive, said he sought to make strengthening relations with Saudi Arabia and the wider Middle East “a priority. “».
Howard Lee, deputy leader of the Hong Kong Monetary Authority, has visited Saudi Arabia four times in the past 14 months.
Christina Choi, chief executive of Hong Kong’s SFC, who also attended the board’s ceremony, said the regulator is working intensively with Saudi Arabia’s Capital Market Authority to put some Hong Kong fund products up for sale in the Saudi market.
“I hope the PIF can also help Hong Kong asset managers introduce more products to the [Saudi] market,” he added.
The Shenzhen Stock Exchange, one of China’s two exchanges, is lately in talks with the Saudi Tadawul Group, which runs the Saudi Arabian Stock Exchange, to bring its ETF Connect program to market.
China’s two main stock exchanges, in Shenzhen and Shanghai, are newly connected to the Hong Kong stock exchange, thanks to the ETF Connect program introduced last year to allow investors to trade eligible ETFs indexed on the other exchanges. ETFs indexed on all three exchanges can also be crossed. -indexed between Hong Kong and China markets.
Chinese and Hong Kong fund corporations are on the hunt for large institutional investors in the Middle East to pursue targets for their China-focused investment strategies, and seasoned fund professionals are increasingly visiting the region and some are even contemplating opening an office there.
Fund executives told Ignites Asia that in targeting Middle East cash, they struggle to get to know investors, and those with whom they build relationships prefer to invest in the number one market in sectors such as generation rather than funds.
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There are also questions about the true extent of the investments required in the Saudi stock market.
Saudi Arabia’s nominal gross domestic product is only the seventeenth largest in the world, with an economy as large as Turkey or the Netherlands, and most domestic ETFs listed in Hong Kong that don’t invest in China have failed to resonate with investors.
But Saudi Arabia’s FTSE index has pulled back 45. 3 percent over the past three years, well ahead of Hong Kong’s Hang Seng Index and China’s leading CSI 300 index over the same period.
Tony Wong, head of Asia-Pacific sales at CSOP AM, said at the board rite that part of the initial assets raised in the ETF came from Hong Kong institutions and the other part from overseas, but he believed that the product’s liquidity in the secondary market would slowly increase. It would increase over time.
*Ignites Asia is a news service published through FT Specialist for professionals working in the asset control industry. Trials and subscriptions can be obtained on ignitesasia. com.