Hong Kong investors to gain access to Aramco and other Saudi mega cap stocks via soon-to-be launched ETF
- The fund will track Saudi Arabia’s 50 most valuable companies operating in sectors including financials, energy and materials, sources said
- The ETF will be managed by CSOP Asset Management, a Hong Kong venture owned by China Southern Asset Management, they said
Hong Kong investors will get a chance to tap into Saudi Arabia’s economy through a newly launched exchange-traded fund (ETF) which could buy shares in corporations like Aramco, the world’s third-most valuable company, and other giants listed on the world’s seventh-largest stock market in Riyadh.
An ETF is an investment vehicle that works like a combination of mutual funds and stocks, allows individual investors to invest in markets in an easy and convenient way. Individual investors can buy and sell listed ETFs on stock markets and are similar to mutual funds as they track entire indices.
The ETF, to be managed by CSOP Asset Management, a Hong Kong venture owned by China Southern Asset Management, is being launched at a time when the Middle East nation is looking to finance diversification of its oil-dependant economy.
The fund will track the 50 most valuable companies in Saudi Arabia’s stock exchange operating in sectors ranging from financials to energy and raw materials and will start trading on Hong Kong’s bourse soon, sources familiar with the situation said.
Financial Secretary Paul Chan Mo-po and his team have worked hard to the launch the ETF, according to sources familiar with the situation.
The sale was confirmed by a CSOP official who spoke on condition of anonymity, because the ETF launch was yet to be made public.
“The launch of this ETF is a milestone development, as Asian investors will have greater access to Saudi Arabia’s economic growth and its capital markets while promoting two-way capital flow between the two regions,” the city’s financial secretary Paul Chan Mo-po said.
“It will be conducive to sovereign funds and investors in Saudi Arabia and the Middle East expanding their investments using Hong Kong as a base. At the same time, Hong Kong would serve as a broad platform linking Saudi Arabia with investors in Asia and globally, with rising investment interest in the Gulf nation.”
“The listing will be a milestone as it will allow Hong Kong individual investors for the first time to invest in Saudi Aramco or other largest Saudi companies via the ETF,” said Wilson Chan Fung-cheung, the associate director of City University of Hong Kong’s master of business administration programme. “By purchasing a unit of this Saudi ETF, the investors can invest in a basket of the 50 Saudi largest listed companies, including Saudi Aramco.”
“The launch of this ETF will thus create a new role for Hong Kong to connect international investors with Middle Eastern companies. This will strengthen Hong Kong’s status as an international financial market and act as a connector between the Middle East market and the world.”
Sally Wong, CEO of Hong Kong Investment Funds Association said this tied in with the development of the real economy, and would be a win-win for the development of both capital markets as well as for the respective investors.
“The launch of the ETF is an example of how we can take this forward – Hong Kong investors will be able to leverage on the investment opportunities in the Middle East in a cost-effective manner. And the Middle East capital markets can tap into a larger investor base,” she said.
The ETF product may offer a new investment venue for the large pool of global funds in Hong Kong, whose interest in Chinese and local stocks has waned this year amid the nation’s patchy economic recovery, analysts said. Saudi Arabia’s benchmark stock index Tadawul All Share Index has been flat this year, outperforming both the Hang Seng Index and China’s CSI 300 Index that have dropped over 8 per cent. Overseas investors dumped 80.1 billion yuan (US$10.9 billion) of yuan-traded stocks through the exchange link with Hong Kong in the third quarter.
“This ETF is a good start to attract local investors to the Middle East markets,” said Tom Chan Pak-lam, permanent honourable president of the Institute of Securities Dealers, an industry body of stockbrokers in Hong Kong.
First launched in the US in 1993, ETFs have become one of the fastest-growing investment products in the world. Hong Kong investors are already familiar with ETFs thanks to the Tracker Fund, created by the Government in 1999 as a means of selling shares accumulated during the 1998 stock market intervention. There are now 175 ETFs trading in Hong Kong with a market cap at US$50 billion as of September. The turnover of ETF products stood at US$1.5 billion per day, up 30 per cent from a year earlier, the data of HKEX shows.
“Since HKEX and the stock markets in Shanghai and Shenzhen have already established the ETF Connects and stock connects, it is possible for mainland investors to be able to trade the Saudi ETF in future if it would be included in the connect scheme,” said City University’s Chan.
More investors have set their eyes on Saudi Arabia, the world’s biggest oil exporter, after the nation unveiled its so-called “Vision 2030” plan. Under the blueprint, the nation plans to wean off its reliance on oil and attract investments in emerging industries from healthcare to infrastructure and tourism. Ties between Hong Kong and Saudi Arabia have strengthened after China’s President Xi Jinping visited the Middle-East nation in December to seal a raft of major deals in technology and energy industries.
Beijing views Saudi Arabia as an important ally in Xi’s Belt and Road Initiative of infrastructure investments and trades. Earlier, Riyadh agreed to settle trade payments in the Chinese currency yuan, a move that will promote its internalisation and pose a challenge to the US dollar’s position as the world’s reserve currency.
The exchange’s biggest stock is Saudi Aramco, ranked as the third-most valuable company globally, behind Microsoft and Apple, with a market capitalisation of US$2.1 trillion.
