Hong Kong plans fund on Saudi stock exchange

Wam

• ETF will track Hong Kong stock indices
• Investment negotiations ongoing
• Chinese assets are ‘very attractive’

Officials in Hong Kong are planning to set up an exchange-traded fund with Saudi Arabia’s stock exchange, as Middle East investors increasingly go “bargain hunting” in the Asian city state to take advantage of lower valuations.

An exchange-traded fund (ETF) is an investment fund traded on regulated stock exchanges, much like individual stocks are bought and sold. 

The ETF will track Hong Kong stock indices at a time when the special administrative region is trying to enhance its global appeal.

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Increasing geopolitical tensions with countries in the west have been stifling investment.

The value of an ETF rises and falls as the underlying asset increases or decreases in price. It allows investment in an asset, such as gold or an index of stocks, without having to buy the asset itself.

The fund provider owns the assets and sells shares to investors.

Michael Wong, Hong Kong’s deputy financial secretary, speaking at the inaugural international Capital Markets Forum in Hong Kong on Thursday, said formal negotiations were also under way for an investment promotion and protection agreement with Saudi Arabia.

Wong said that the Hong Kong government was also considering establishing an economic and trade office in Riyadh.

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Saudi Arabia listed its $1 billion ETF on the Hong Kong stock exchange in November last year, allowing investors to trade the constituent stocks of the Saudi stock market directly in the Hong Kong market through the ETF in Hong Kong dollars or renminbi.

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

Bargain hunters

The Hang Seng Index, the main indicator of the overall market performance in Hong Kong, is down almost 36 percent over the past five years, although it is up more than 9 percent in the year to date.

Benny Marty/Alamy via Reuters Connect

King Leung, head of financial services and fintech at InvestHK, the government department responsible for foreign direct investment, blamed negative press for the dip in valuations. However he maintained that investors from the Middle East were among a plethora of interested parties looking to capitalise.

“This year, just a few months ago, they said ‘look, the valuation of a lot of the Chinese assets, these are high quality assets generating very good positive cash flow’,” he said.

“But because of some of the media the valuation got beaten down quite badly. And they’re like, ‘you know what, we are coming in to do bargain hunting’.”

Leung is part of a 40-strong delegation from InvestHK, which has been in the UAE this week looking to strengthen ties between companies based in the Chinese mainland who operate through Hong Kong and the emirates.

He said Middle East investors including the region’s sovereign wealth funds and family offices were “scooping up high quality, positive cash flow generating assets at very, very attractive valuations compared with the other high-flying stock markets around the world”.