Hong Kong woos Saudi money in attempt to revive stock market

HONG Kong is turning to oil-rich Saudi Arabia for new funds to help offset a growing list of challenges facing its stock market.

The Saudi Tadawul Group and Hong Kong Exchanges & Clearing are co-organising a conference on Thursday (May 9) at a very opportune time given the city needs fresh stock listings and fund inflows to boost its status as a financial hub. While Hong Kong stands to benefit from the forum, it will also involve an army of Saudi company officials seeking more exposure to Asian investors.

“There is strong political will that is pushing for this relationship between China and Gulf countries,” said Edmond Christou, an analyst at Bloomberg Intelligence in Dubai, who recently met with investors and companies in Hong Kong, Shanghai and Beijing. “When you talk to businesses in China, you hear that clients are interested in investing in the Middle East. They are looking for ways to make that happen.”

Thursday’s conference shines a spotlight on the latest strategy of Hong Kong’s bourse operator to attract a new set of investors to replace those from the US and Europe, who may be deterred from doing business in China at a time of rising geopolitical tensions. The initiative also comes after China’s securities regulator said last month it will encourage more firms to hold initial public offerings (IPOs) in Hong Kong.

Hong Kong Exchanges & Clearing has been having a tough time in recent years. The stuttering Chinese economy and increased sabre-rattling between Beijing and Washington have sapped investor interest for China-linked shares. The amount of funds raised by IPOs in the financial hub slumped to US$610 million in the first quarter, the lowest level since 2009, while the bourse operator’s shares have slumped more than 50 per cent from their highs of early 2021.

Saudi side

The appeal of closer ties with China are clear from the Saudi Arabian side too. Crown Prince Mohammed bin Salman is working to increase foreign ownership and pump liquidity in publicly traded stocks under the kingdom’s Vision 2030 agenda.

In contrast with Hong Kong, the Saudi stock market has been going from strength to strength. Market capitalisation of the bourse has climbed 11 per cent over the past three years, while Hong Kong’s has dropped 25 per cent. The main equities gauge in Riyadh has risen in seven of the last eight years, with a surge in inflows from foreign investors since 2019, when index compiler MSCI added the country to its emerging-markets equities benchmark.

Investors in Hong Kong are able to gain exposure to the Saudi market through the CSOP Saudi Arabia exchange-traded fund (ETF), the first ETF of its kind in Asia. The ETF debuted in November with more than US$1 billion in assets and the backing of Saudi Arabia’s sovereign wealth fund. Even so, it only attracted around US$12 million in funds from its inception to Apr 24, according to calculations from Bloomberg Intelligence.

CSOP Asset Management is working with asset managers to obtain regulatory approval for a cross-listing of the ETF in Shanghai, which should hopefully take place in the second half of this year, said Melody Xian, deputy chief executive officer at the money manager in Hong Kong.

Chinese investors “are aware of the Middle East opportunities, but I think that, for most of them, it’s hard to differentiate Saudi Arabia versus other markets”, she said.

Hong Kong Exchanges & Clearing CEO Bonnie Chan has cited “considerable opportunities to connect with the fast-growing capital hubs of South-east Asia and the Middle East”. Her predecessor Nicolas Aguzin visited the Middle East five times during his three-year tenure as the head of the exchange.

Hong Kong chief executive John Lee has long touted his ambitions to persuade the world’s top oil producer Saudi Aramco to seek a dual-listing in the Asian financial centre. While there’s no sign of that happening in the near future, it would be a huge vote of confidence in the city’s exchange if it takes place.

“There are a lot of synergies between Saudi Arabia and Hong Kong,” said Nayef Al Athel, chief sales and marketing officer at Saudi Tadawul Group. “We have the ambition to connect capital from east to west and we have to start somewhere.” BLOOMBERG