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Jeddah - Yasmine El Tohamy - Chinese investors flock to Saudi ETFs amid poor local equity performance: Bloomberg
RIYADH: Chinese investors are increasingly putting money in two newly launched exchange-traded funds tracking Saudi stocks, due to poor local equity performance and the appeal of foreign assets, reported Bloomberg.
Saudi-focused ETFs had a robust start when they debuted on July 16 in Shanghai and Shenzhen, each soaring by the daily limit of 10 percent on their first two trading days, according to the news agency.
Trading was temporarily halted on July 18 after managers reported that the premium of their share prices over their net asset values had become too high.
The heightened interest in these ETFs can be attributed to the strengthening economic and trade relationships between China and Saudi Arabia, Bloomberg added.
Recently, companies and sovereign funds from both countries have announced numerous billion-dollar deals in industries such as technology, solar power, and electric vehicles.
“Chinese investors are eager for better returns from overseas assets due to the low yields from domestic investments,” Nelson Yan, co-chief investment officer at Fosun Wealth International in Hong Kong, told Bloomberg.
“The investment climate between China and Saudi Arabia is favorable, with lower geopolitical risks,” he added.
In addition, Chinese government entities are encouraging investments in the Middle East, and Chinese index companies are keen on developing Middle East-related indexes and ETFs, Yan added.
The Huatai-PineBridge CSOP Saudi Arabia ETF QDII, listed in Shanghai, traded at a premium of up to 17 percent over its NAV on its second trading day. This premium later decreased to 3.8 percent by July 24.
Similarly, the Shenzhen-listed China Southern Asset Management CSOP Saudi Arabia ETF QDII traded at a premium of 6 percent on the same day. Typically, most ETFs trade within 1 percent of their NAV, as noted by ETF.com and reported by Bloomberg.
At the listing event in Shenzhen Saudi Public Investment Fund Governor Yasir Al-Rumayyan said that the Kingdom and China’s financial markets are set to see a new chapter of connectivity with the recent launch of exchange-traded funds on Chinese bourses.
He stressed that the ETF gives investors in Asia access to the Saudi equity market and its sustainable long-term growth driven by strategic economic transformation.
This enthusiasm for Saudi shares is not unprecedented. Earlier this year, Chinese mutual fund houses attempted to curb investor enthusiasm for funds focused on US stocks by imposing purchase restrictions.
Additionally, some fund companies allocated more Qualified Domestic Institutional Investor quotas to Japanese ETFs to better align their share prices with their NAVs.
The two Saudi ETFs track the FTSE Saudi Arabia Index, which includes significant weightings in financials, basic materials, and energy companies. Notably, Al Rajhi Bank, Saudi Aramco, and Saudi National Bank constitute nearly one-third of the index.
Economic ties between Saudi Arabia and China have been strengthening in recent years, and in November the Kingdom’s central bank, also known as SAMA, and the People’s Bank of China signed a local currency swap agreement worth $6.93 billion.
The agreement will last three years, but China’s central bank said at the time it can be extended after two years by mutual agreement.
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