Hong Kong works on an ETF of HKEX stocks for Tadawul exchange in push for collaboration with Saudi Arabia

An exchange-traded fund (ETF) that tracks Hong Kong’s benchmark stock index is in the works, said the city’s deputy financial secretary Michael Wong Wai-lun
Once ready, the ETF will be listed on the Tadawul exchange in Riyadh, to expose Middle East investors to the earnings and capital growth in China and Hong Kong

HKEX

Aileen Chuang,Enoch YiuandMia Castagnone

Published: 3:28pm, 9 May 2024

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Hong Kong and Saudi Arabia are taking a step towards closer collaboration, creating more financial products that allow investors to put money into each other’s capital markets, according to speakers at the Saudi Tadawul Group’s first Capital Markets Forum in the city.

An exchange-traded fund (ETF) that tracks Hong Kong’s benchmark stock index is in the works, said the city’s deputy financial secretary Michael Wong Wai-lun. Once ready, the ETF will be listed for trading on the Tadawul stock exchange in Riyadh, to expose Middle East investors to the corporate earnings and capital growth in China and Hong Kong.

“We are working with several financial institutions on the listing of [the] ETF,” Wong said during the forum at the Connect Hall of Hong Kong Exchanges and Clearing Limited (HKEX). “We believe this will further strengthen our two-way capital flows.”

Hong Kong’s deputy financial secretary Michael Wong Wai-lun, speaking at the Capital Market Forum at the Hong Kong stock exchange (HKEX) on May 9, 2024. Photo: Edmond So

The new ETF would complement the Hong Kong-listed CSOP Saudi Arabia ETF, which tracks 56 Middle East stocks, including the world’s biggest company Saudi Aramco. CSOP’s ETF has risen 9.2 per cent since it began trading in Hong Kong in November, outperforming the 7.8 per cent increase in the Hang Seng Index in the same period.

“There is interest and there is a lot of work being done to try and reciprocate the effort being done in Hong Kong towards Saudi Arabia, and I am confident that we would see another ETF listing in Saudi Arabia and maybe even more ETF listings in Hong Kong,” said Nayef Saleh Al-Athel, the Saudi Tadawul Group’s Chief Sales & Marketing Officer.

The new financial product underscores the flurry of collaborations and accords between Hong Kong and Riyadh since the February 2023 visit by Chief Executive John Lee Ka-chiu to the kingdom. Hot on the heels of that visit, HKEX and Tadawul agreed to work together in fintech, cross listings and disclosure standards for the environment, sustainability and governance (ESG). Hong Kong’s monetary authority has an accord to work with the Saudi central bank.

An interview with Nayef Al-Athel, chief of listing at the Saudi Exchange, during the Capital Market Forum at the Hong Kong stock exchange on May 9, 2024. Photo: Eugene Tang

The Securities and Futures Commission (SFC) may be the next to step up during the visit by the regulator’s chief executive Julia Leung Fung-yee to the Persian Gulf region, scheduled for late May and early June, said the SFC’s Executive Director of Investment Products Christina Choi.

“Most of [Hong Kong’s asset managers] are very interested in the Saudi market, one of the top markets for collaboration and fund distribution,” Choi said during a panel discussion with Fahad bin Hamdan, assistant deputy of financing and investment at the kingdom’s Capital Market Authority.

“Asset managers can create new products, using the [local] expertise of Saudi managers,” in addition to having more of Hong Kong’s financial products in the kingdom, she said.

Financial collaboration between the two economies has also been buttressed by a strong foundation. Hong Kong’s Department of Justice agreed to cooperate with the Saudi Ministry of Justice in dispute resolution and avoidance. Even Cathay Pacific Airways has gotten in on Hong Kong’s embrace of Riyadh with plans to resume direct passenger flights between the two cities in the fourth quarter, cutting the travel time to six hours.

Formal negotiations for an investment promotion and protection agreement between Hong Kong and Saudi Arabia are under way, Wong said. The city government plans to open an economic and trade office in Riyadh, Wong said, following the December 2023 cooperation accord between InvestHK and the Ministry of Investments of Saudi Arabia (MISA).

“The friendship and partnership between Hong Kong and Saudi Arabia will go very far and will endure the test of time,” Wong said.

Hong Kong is the first international destination for the Tadawul’s flagship capital market forum. This year’s edition brought 650 delegates from the government, finance and business communities to the HKEX Connect Hall in Central.

Carrying the theme “powering connections,” the forum focused on bridging investors and issuers to connect the capital-raising hubs of mainland China and Hong Kong with the Middle East. The HKEX accord with Tadawul opened the door for Tawadul-listed companies to mount secondary listings, or so-called dual primary listings, in Hong Kong.

As an international financial centre, Hong Kong has a unique role in connecting the world and mainland China, said HKEX’s chief executive Bonnie Chan.

“China and Saudi Arabia are both undergoing fantastic economic transformation, and that brings a lot of very interesting opportunities for households and people,” Chan said.

Emerging sectors like telecommunications, tech innovation and manufacturing in Saudi Arabia present new opportunities for investors on our side of the world. A growing middle-class population and wealth accumulation in China is phenomenal, creating demand for diversification, she said.

The next edition of the Capital Market Forum will take place on February 19 and 20 next year in Riyadh, said the Tadawul Group’s chief executive Khalid Al-Hussan.

“We’re not only working to attract investors,” he said. “We’re working towards more conductivity and integration between the two capital markets.”

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