China okays 2 ETFs tracking top Saudi Arabian firms to list on onshore markets

China has opened up its capital market to Asia's first exchange-traded fund (ETF) that tracks Saudi Arabia's largest companies, as the two countries continue to deepen financial ties.

Two feeder funds - Hautai-Pinebridge CSOP Saudi Arabia ETF QDII and China Southern CSOP Saudi Arabia ETF QDII - that mirror the CSOP Saudi ETF in Hong Kong have received approval from the China Securities Regulatory Commission to list on the mainland, the two companies said on Friday. The funds will be managed by Huatai-Pinebridge Fund Management and China Southern Asset Management.

The cross-listed ETFs will operate under the Qualified Domestic Institutional Investor (QDII) programme, which allows institutional investors to invest in foreign securities within a prescribed quota. Funds offered under the QDII scheme officially allow China's retail investors to invest in foreign stocks and bonds.

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"It's the first of its kind for mainland investors," said Ding Chen, CEO of CSOP Asset Management, a Hong Kong venture owned by China Southern Asset Management. The market has shown great interest in this product, and it also supports the Belt and Road Initiative, she added.

CSOP Asset Management has received approval from China's market regulator to launch an ETF tracking Saudi stocks. Photo: CSOP alt=CSOP Asset Management has received approval from China's market regulator to launch an ETF tracking Saudi stocks. Photo: CSOP>

CSOP's Saudi ETF listed last November in Hong Kong. The ETF 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 Aramco, 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.

The ETF's cross-listing could help the fund tap China's 200 million retail investors, which has shown increasing appetite for overseas ETFs. With a weak domestic stock market and a downturn in the property sector, investors are seeking to diversify their holdings.

The CSI 300 Index, which tracks the biggest companies listed in Shanghai and Shenzhen, has gained 3.2 per cent so far this year after falling for three consecutive years. Meanwhile, the S&P 500 Index in the US and the Nikkei 225 Index have surged by 13.9 and 16 per cent, respectively, registering fresh highs along the way.

At the same time, the FTSE Saudi Index has lost 5.9 per cent this year in US dollar terms, according to Bloomberg data.

The ETFs' launch comes as China and Saudi continue to strengthen financial collaboration and create more products, allowing investors to tap each other's capital markets.

The Shanghai Stock Exchange last September signed an agreement with Saudi Tadawul Group, the local bourse operator, to collaborate on cross-listings, fintech, ESG (environmental, social and governance) and data exchange.

An ETF tracking Hong Kong's benchmark Hang Seng Index is also in the works, which could offer Middle East investors exposure to some of the biggest companies in China and Hong Kong.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

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