(Bloomberg) — Two exchange-traded funds focused on Saudi Arabian stocks that debuted today in Shanghai and Shenzhen give Chinese investors an option to bet on equities in the oil rich nation as both countries strengthen ties.
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The China Southern Asset Management CSOP Saudi Arabia ETF QDII listed in Shenzhen after raising 634 million yuan ($87 million). A second fund, the Huatai-PineBridge CSOP Saudi Arabia ETF QDII, began trading in Shanghai after raising 590 million yuan. Shares of both funds, which saw a high volume of trade, ended the session at their first-day price limit.
The debuts are indicative of deepening investment links between China and Saudi Arabia as they diversify from the West. The main exchanges in Hong Kong and Riyadh co-organized a conference in May in the Asian city where officers highlighted mutual interest in offering more products to Chinese and Middle Eastern investors.
Investments by the Saudi sovereign wealth fund in Chinese firms over the past year include the acquisition of $2 billion in convertible bonds sold by computers manufacturer Lenovo Group Ltd., investments in a technology venture with e-commerce giant Alibaba Group and talks to disburse money in EV maker Human Horizons Group Inc.
Target investors for the ETFs are “those who have knowledge in equity markets, have demand for global asset allocation and have confidence in the energy sector,” said Mao Wei, the chief equity investment officer at China Southern Asset Management Co. “People will pay more attention to Saudi Arabia looking at the energy and financial sector” compared with US or Japan investment options, Wei added.
The ETFs will make it easier for mainland investors to further diversify their holdings internationally, particularly in a region that wields influence in energy and oil sectors.
The ETFs will indirectly invest in the Saudi market through the Hong Kong-domiciled CSOP Saudi Arabia ETF, which debuted in the Asian hub last year after raising more than $1 billion. The fund, which tracks the FTSE Saudi Arabia Index, had Saudi Arabia’s sovereign wealth fund as one of its leading investors.
The Saudi China ETF program is aimed at facilitating the cross listing of funds in both countries or the launch of feeder funds.
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, the 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.
Listen the Asia Centric podcast about China, Saudi Arabia and the Gulf Cooperation Council forging closer ties.
–With assistance from Joanne Wong and Christine Burke.
(Updates ETF trading in second paragraph, adds details to third and fourth paragraphs.)
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