China and Saudi Arabia are in talks for ETF cross-listings to strengthen financial ties, according to sources.
China and Saudi Arabia are in talks for ETF cross-listings to strengthen financial ties, according to sources.
China and Saudi Arabia in Talks to List ETFs on Each Other’s Exchanges
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China and Saudi Arabia are deepening their financial ties as their diplomatic relations continue to improve. The two countries’ stock exchanges are in talks to allow exchange-traded funds (ETFs) to list on each other’s bourses, according to three sources familiar with the matter. This move could pave the way for broader cooperation beyond energy, security, and sensitive technology sectors.
The negotiations are still in the early stages, but if successful, it would mark a significant milestone in the financial collaboration between Beijing and Riyadh. The Shenzhen Stock Exchange, one of China’s major bourses, is in discussions with the Saudi Tadawul Group to establish an “ETF Connect” program, enabling ETFs to be traded on both exchanges.
For China, such a tie-up with Saudi Arabia would extend its ETF Connect initiatives beyond East Asia and demonstrate its commitment to opening up its trillions of dollars worth of financial markets to international investors. Several of China’s biggest ETF operators have been notified about the potential cross-listing agreement and are considering the option.
The cross-listing of ETFs would allow investors in China and Saudi Arabia to trade funds that track specific stocks or bond indexes listed on each other’s exchanges. While China has already launched “ETF Connect” projects with offshore stock exchanges in Hong Kong, Japan, South Korea, and Singapore, the trading volumes for these programs have not yet taken off, despite the popularity of some products.
In terms of the ETF market, China and Hong Kong have a combined total of 886 ETFs worth $256.8 billion listed on their bourses, according to Morningstar’s data. In contrast, Saudi Arabia’s ETF market is still relatively nascent, with only eight products listed on the exchange. However, the Saudi stock market has a capitalization of $2.7 trillion, making it one of the largest in emerging markets.
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Hong Kong Exchanges and Clearing Ltd (HKEX) is also engaged in separate discussions with the Saudi counterpart for a similar program. In February this year, HKEX signed an agreement with the Tadawul Group to explore cooperation in various areas, including cross-listings. The two organizations aim to mutually benefit their financial markets through enhanced collaboration.
According to Jackie Choy, Director of Passive Investment Ratings for Morningstar Asia, the Saudi ETFs would offer a “very niche and small offering” for Chinese and Hong Kong investors. These ETFs would provide exposure to Arabic equity, bonds, gold, and U.S. equity. Choy emphasizes the importance of local investors having knowledge of the market under the scheme before making any investments.
As Beijing seeks to expand ties with countries in Europe, the Middle East, and Africa amid frustrations with U.S. economic policies, its diplomatic push includes courting the U.S. ally Saudi Arabia. Although energy remains the primary focus of economic cooperation between Beijing and Riyadh, their ties in trade, investment, and security have been steadily growing. China is currently Saudi Arabia’s top trading partner, with trade worth $87.3 billion in 2021.
Furthermore, the collaboration goes beyond traditional industries. In June, Saudi Arabia’s Ministry of Investment signed a $5.6 billion deal with Chinese electric car maker Human Horizons, aiming to collaborate on the development, manufacture, and sale of vehicles. Similarly, oil giant Saudi Aramco increased its multi-billion dollar investment in China by finalizing a joint venture in northeast China and acquiring an expanded stake in a privately controlled petrochemical group.
In conclusion, China and Saudi Arabia’s discussions to list ETFs on each other’s stock exchanges signify a growing interest in deepening financial ties. If successful, this partnership would provide international investors with access to these previously untapped markets. As economic cooperation between Beijing and Riyadh strengthens, their collaboration extends beyond energy interests, opening doors for enhanced trade, investment, and security alliances.
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