The memorandum of understanding (MOU) signed by the stock exchange operators of Hong Kong and Saudi Arabia could pave the way for more companies to list their shares for trading in the Asian city, giving one of Asia’s financial hubs a leg up in the race to host initial public offerings (IPOs), analysts said. Hong Kong Exchanges and Clearing ( HKEX ) signed an accord with Saudi Tadawul Group Holding over the weekend to work together on cross listings, fintech , environmental, social and corporate governance ( ESG ) and other areas of interest to both exchanges, according to a joint statement. The MOU, signed during Chief Executive John Lee’s visit to the Middle East , could lay the foundation for the kingdom’s oil company Saudi Aramco – whose US$29.4 billion IPO in 2019 on the Tadawul remains the world record – to list its shares in Hong Kong, brokers said. “Companies such as Saudi Aramco could benefit from a primary listing in Hong Kong as they can be invested by mainland investors”, said Tom Chan Pak-lam, permanent honourable president of Institute of Securities Dealers in Hong Kong. “Investors of Hong Kong and mainland China will be interested to invest in Aramco and other Middle East companies as the economic development have been positive in recent years”. “This MOU brings us one step closer towards enabling cross listings and other areas of collaboration between Saudi Arabia and Hong Kong”, said Tadawul’s CEO Khalid Al Hussan. “As we seek to position the Saudi capital market as an investment hub between East and West, we are seeing increased interest from issuers and investors in Asia”. Besides cross listing, the MOU will also enable HKEX and Tadawul to work on fintech, ESG and other areas of interest to both exchanges. Hong Kong is leading the way in making all publicly traded companies include ESG goals in their mandatory financial disclosures. Hong Kong bourse joins regulators to fight for Aramco IPO The MOU reflected the HKEX’s “ongoing commitment to driving global connectivity and shaping a successful shared sustainable future”, said Nicolas Aguzin, CEO of the Hong Kong bourse operator. “The Kingdom of Saudi Arabia, and the broader Middle Eastern region, are one of the world’s most dynamic and exciting economic and innovation hubs and also home to some of the fastest growing investor groups in the world”, Aguzin added. “Hong Kong and HKEX’s markets offer significant opportunities for international investors and companies, including unrivalled connectivity to the mainland Chinese markets through our unique Connect programmes”. Global companies that are primarily listed in Hong Kong and subject to the city’s regulatory regime are entitled to join the cross-border investment channel called the Connect , according to a policy announced last December by the China Securities Regulatory Commission (CSRC). That would enable mainland China’s investors to invest in global equities via Hong Kong. Can Hong Kong help cut through the alphabet soup of global ESG rules? That means Aramco too can be accessible to China’s hordes of stock investors if the Saudi company opts for a primary listing in Hong Kong. Foreign firms that choose secondary listings in Hong Kong can be waived from some local regulations but they will not be qualified to join the Stock Connect scheme. The scheme connects Hong Kong and Shanghai stock markets since 2014 for cross border trading, and a Shenzhen leg was added in 2016. “We have seen some international firms such as Prada, L’ Occitane are listing in Hong Kong”, said John Lee Chen-kwok, the Hong Kong-based vice-chairman and head of Greater China global banking at UBS. “With the HKEX promotional efforts, it is possible to see international giants such as Aramco consider listings in Hong Kong”. China, Hong Kong to access more of each other’s stocks in wider Connect link HKEX’s main board was the world’s largest initial public offering (IPO) market seven times in the past 14 years but it dropped to third place in the past two years. International listings will help Hong Kong climb back to the top of the league table, Lee said. The MOU between the two bourse operators is a welcoming gesture, which could pave the way for more companies in the Middle East to list in Hong Kong, said Stephen Chan, a partner of international legal firm Dechert. “Hong Kong has already allowed the international company to list here,” he added. “More Middle Eastern companies listing in Hong Kong will give more diversity to the mix of companies listed in Hong Kong and hence it would be a welcoming development for the local market.”