China and Saudi Arabia are engaged in discussions to allow exchange-traded funds (ETFs) to be listed on each other’s stock exchanges. The aim is to enhance financial cooperation between the two countries as diplomatic relations continue to improve. The talks are still in the early stages, but if successful, this could be a significant first step towards expanding collaboration beyond energy, security, and technology sectors.
The Shenzhen Stock Exchange in China is currently negotiating with the Tadawul Group, the operator of the Saudi Stock Exchange, for the implementation of an ETF Connect program. This cross-listing agreement would enable investors in both China and Saudi Arabia to trade funds that track specific stocks or bond indexes listed on each other’s exchanges.
For China, this partnership with Saudi Arabia signifies a commitment to opening up its financial markets, worth trillions of dollars, to international investors. Some of China’s major ETF operators have already been informed about the potential cross-listing agreement with Saudi Arabia and are considering the option.
It is worth noting that China has previously launched “ETF Connect” projects with offshore stock exchanges in Hong Kong, Japan, South Korea, and Singapore. While these programs have not yet seen significant trading volumes, certain products have been well-received by investors. For example, the ICBC CSOP FTSE Chinese Government Bond Index ETF, launched in 2020 under the ETF Connect scheme with Singapore, is one of the largest ETFs based in Singapore.
At present, there are 886 ETFs valued at $256.8 billion listed on the Chinese and Hong Kong stock exchanges. In contrast, Saudi Arabia’s ETF market is still relatively new, with only eight products listed on the exchange. However, Saudi Arabia’s stock market is significant in emerging markets, boasting a capitalization of $2.7 trillion.
In addition to China, Hong Kong Exchanges and Clearing Ltd (HKEX) is also in discussions with the Saudi stock exchange for a similar program. HKEX had previously signed an agreement with the Tadawul Group to explore cooperation, including cross-listings.
As these discussions progress, it is important for investors to familiarize themselves with the local market and understand the offerings available. In the case of Saudi ETFs, they provide exposure to Arabic equity, bonds, gold, and US equity, making it a niche and specialized investment option.
China is currently Saudi Arabia’s largest trading partner, with trade between the two countries valued at $87.3 billion in 2021. In addition to financial cooperation, there have been significant investments and collaborations in other sectors, such as the $5.6 billion deal signed between Saudi Arabia’s Ministry of Investment and Chinese electric car maker Human Horizons. Furthermore, oil giant Saudi Aramco has increased its investment in China through joint ventures and acquisitions.
Overall, the potential cross-listing of ETFs between China and Saudi Arabia represents a significant opportunity to strengthen financial ties and expand investment opportunities between the two countries.
