Saudi ETFs make winning China debut as financial ties with Middle East strengthen

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The two feeder funds rose 7.9 percent and 7.8 percent in Shenzhen and Shanghai, respectively, after raising a combined US$170 million

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A file photo shows Saudi Aramco’s Ras Tanura oil refinery and oil terminal in Saudi Arabia on May 21, 2018. Photo: Reuters

Jiaxing Li

Published: 2:30pm, 16 Jul 2024Updated: 5:07pm, 16 Jul 2024

Two exchange-traded funds (ETFs) that track Saudi Arabia’s biggest companies including Saudi Aramco made winning debuts in mainland China on Tuesday, underscoring the strengthening ties between financial markets in China and the Middle East.

The two feeder funds, managed by China Southern Asset Management and Huatai-PineBridge Investment, were snapped up by mainland investors, with both briefly hitting the 10 per cent daily limit on their first day of trading.

The combined trading turnover neared 5 billion yuan (US$690 million) before the funds closed up 7.9 percent and 7.8 percent in Shenzhen and Shanghai, respectively. The broader market, tracked by the CSI 300 Index, added 0.6 percent.

The two cross-listed ETFs, which raised a combined 1.2 billion yuan, invest in the Middle East market through a master fund: Hong Kong-domiciled CSOP Saudi Arabia ETF. They operate under the Qualified Domestic Institutional Investor (QDII) programme, which allows institutional investors to invest in foreign securities within a prescribed quota.

“The ETFs offer Chinese investors convenient access to markets that were previously difficult to reach,” said Shuiyang Pan, portfolio manager of the Saudi ETF at China Southern Asset Management. “They can now directly invest in the Middle Eastern stock market through the Saudi Arabia ETF, without facing obstacles like opening overseas accounts, complying with complex regulations and handling currency exchanges.”

CSOP’s Saudi ETF, the first of its kind in Asia, listed in Hong Kong in November with Public Investment Fund being an anchor investor in the ETF. It tracks the FTSE Saudi Arabia Index, which had a market capitalisation of US$303.5 billion at the end of May. Al Rajhi Banking, Saudi National Bank, Saudi Aramco, ACWA Power and Saudi Basic Industries are the top five constituents, making up 43 per cent of the index’s weighting.