Editorial | Investors to feel Saudi benefit with new ETF

Beijing has been active diplomatically in the Middle East. Hong Kong is reaping the economic benefits. The city has launched a new exchange-traded fund (ETF) enabling local investors to tap into Saudi Arabia’s economy. This means they can gain exposure to the shares of corporate giants in the Gulf region listed on Tadawul, the stock exchange in Riyadh. The ETF will feature at least 50 of the largest stocks listed in Saudi Arabia, including the crown jewel Saudi Aramco, the oil giant. Meanwhile, Valuable Capital, a subsidiary of the second-largest online broker in Hong Kong, will launch a mobile app for Saudi investors to trade stocks online. That app, called Sahm, will initially trade Saudi and US stocks, but will expand to Hong Kong and mainland China stocks next year.

They come on the heels of an agreement signed between the Shanghai Stock Exchange and Tadawul. Hong Kong Exchanges and Clearing (HKEX) had already signed a similar accord with Tadawul earlier this year, thereby paving the way for more Middle Eastern companies to list in Hong Kong and giving the city a leg up in the highly competitive global contest to attract initial public offerings.

Hong Kong offers enormous benefits for the Saudis and other Gulf investors. The Saudi Tadawul market trades only five hours a day and is smaller and less liquid than the city’s. Its US$2.88 trillion market had US$1.36 billion of shares changing hands on a daily average in the past year, compared to the US$4.71 trillion Hong Kong market.

Saudi Arabia is an important player in China’s Belt and Road Initiative for global infrastructure investments and trade. Saudi Arabia has been in discussions to settle its crude oil exports in renminbi with its largest customer, pending a currency-settlement agreement with China. Such an arrangement would challenge the US dollar’s dominance, spur the worldwide usage of the renminbi and directly benefit Hong Kong, the trading hub for offshore yuan.

HKEX chairman Laura Cha Shih May-lung and chief executive Nicolas Aguzin recently spoke at the Future Investment Initiative Conference in Riyadh. Both emphasised the importance of closer collaboration and free movement of capital between China and the Gulf region.