'Game-changer' Saudi: Strong market debut for Saudi ETFs in China
Saudi Arabia flag
Chinese investors are pouring money into two new Exchange-Traded Funds (ETFs) that track Saudi Arabian shares. This is driven by the demand surge for international assets due to the terrible performance of domestic stocks.
On their debut in Shanghai and Shenzhen on July 16, the Saudi-focused ETFs had a brisk start. Both funds soared over the daily 10 per cent limit on their first two trading days. Managers alerted the exchanges that the company's share price premium above its net asset value had grown too high. This led to their suspension for a portion of July 18.
An explanation for the excitement over the two ETFs could be the strengthening of China's and Saudi Arabia's economic and trade links.
A slew of multi-billion dollar partnerships spanning the tech industry, solar power, and electric cars have been announced in recent months by firms and sovereign funds from both sides.
Nelson Yan, co-chief investment officer at Fosun Wealth International in Hong Kong, said, 'Chinese investors are thirsty for better returns from overseas assets as the yield from China assets is too thin.' Yan added, 'The relationship between China and Saudi Arabia is good, investment-wise, and the geopolitics risk is smaller.'
The bet on Saudi Arabian stocks is hardly the first instance where Chinese investors have become smitten with the stocks of a specific nation. Optimism over ties between the two nations has investors keen to learn more, even though the Saudi market may seem more exotic to Chinese investors than US or Japanese shares.
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The two Saudi Arabian Exchange-Traded Funds follow the performance of the FTSE Saudi Arabia index. The index ranks financials, basic commodities, and energy businesses as its top three components.
Three-quarters of the measure is accounted for by Saudi National Bank, Al Rajhi Bank, and Saudi Aramco. Is this a reflection of Saudi being a game changer? Is the kingdom gaining prominence in its new avatar? These themes will be in focus as Saudi transitions away from oil-related activity.