This launch is a strategic move under the Qualified Domestic Institutional Investor (QDII) program, which permits Chinese institutional investors to invest in foreign securities within a specified quota. Consequently, China's retail investors now have the opportunity to invest in Saudi stocks and bonds, offering them a new avenue for diversification amid a challenging domestic market and property sector downturn.
The ETFs will track the FTSE Saudi Arabia Index, featuring major Saudi firms like Al Rajhi Banking, Saudi Aramco, and Saudi Basic Industries. The total market capitalization of the index was $303.5 billion at the end of May. The introduction of these ETFs aligns with China’s Belt and Road Initiative, aiming to enhance economic cooperation and infrastructure connectivity across regions.
The ETFs' launch comes as the Shanghai Stock Exchange and Saudi Arabia's Tadawul Group signed an agreement last September to collaborate on cross-listings, fintech, ESG (environmental, social, and governance) initiatives, and data exchange. This partnership is expected to foster greater financial integration and create more investment opportunities for both Chinese and Saudi investors.
Despite a challenging year for the FTSE Saudi Index, which has dropped 5.9% in US dollar terms, the new ETFs have garnered significant interest from China’s extensive retail investor base. Investors are looking to diversify their portfolios, especially given the CSI 300 Index's modest 3.2% gain this year, compared to the more robust performances of the S&P 500 and Nikkei 225 indices.
This strategic move by China and Saudi Arabia reflects a broader trend of expanding financial collaboration and integrating their capital markets. The cross-listing of these ETFs is poised to facilitate greater access to each other's economic growth stories, enabling investors to capitalize on emerging market opportunities.
The introduction of these ETFs is not only a significant step in the financial alliance between China and Saudi Arabia but also a pivotal development for global investors seeking exposure to Saudi Arabia's economic landscape. As both countries continue to deepen their financial and economic ties, these ETFs will likely serve as a crucial instrument for investors aiming to tap into the growth potential of the Saudi market.
This collaboration is expected to drive further innovations in financial products, allowing investors from both regions to benefit from diverse and lucrative investment opportunities.