Two exchange-traded funds (ETFs) focused on Saudi Arabian stocks that debuted today in Shanghai and Shenzhen give Chinese investors an option to bet on equities in the oil rich nation as both countries strengthen ties.

The China Southern Asset Management CSOP Saudi Arabia ETF QDII listed in Shenzhen after raising 634 million yuan (US$87 million or RM408.19 million). A second fund, the Huatai-PineBridge CSOP Saudi Arabia ETF QDII, began trading in Shanghai after raising 590 million yuan. Both funds traded close to their listing prices as of 10:20 a.m. local time.

The funds will make it easier for mainland investors to further diversify their holdings internationally, particularly in a region that wields influence in energy and oil sectors. The debuts come as Beijing strengthens ties with Gulf nations amid tensions with the West and as Saudi investors step up their presence in Asia.

Target investors are “those who have knowledge in equity markets, have demand for global asset allocation and have confidence in the energy sector”, said Mao Wei, the chief equity investment officer at China Southern Asset Management Co. “People will pay more attention to Saudi Arabia looking at the energy and financial sector” compared with US or Japan investment options, Wei added.

The ETFs will indirectly invest in the Saudi market through the Hong Kong-domiciled CSOP Saudi Arabia ETF, which debuted in the Asian hub last year after raising more than US$1 billion. The fund, which tracks the FTSE Saudi Arabia Index, had Saudi Arabia’s sovereign wealth fund as one of its leading investors.

The Saudi China ETF program is aimed at facilitating the cross listing of funds in both countries or the launch of feeder funds.

Mainland investors will find it easier to build exposure to Saudi stocks using the funds as they can invest in yuan and find information in Chinese, according to Melody Xian He, the deputy chief executive officer at CSOP Asset Management.

About 20,000 individuals and funds took allocations in the ETFs during an offer period of seven days, she said in an interview.

As investment links between China and Saudi Arabia deepen, Hong Kong could be “the largest beneficiary of the Saudi China ETF connect programme because ETFs that are listed in Saudi Arabia and mainland China could feed back into the Hong Kong ETF”, said Rebecca Sin, an analyst at Bloomberg Intelligence in Hong Kong.

“The next step of the Saudi China ETF Connect could be that Saudi Arabia asset managers launch a feeder fund,” she added.

  - Bloomberg