HONG KONG - Hong Kong is turning to oil-rich Saudi Arabia for new funds to help offset a growing list of challenges facing its stock market.
The Saudi Tadawul Group and Hong Kong Exchanges and Clearing (HKEX) are co-organising a conference on May 9 at a very opportune time given the city needs fresh stock listings and fund inflows to boost its status as a financial hub. While Hong Kong stands to benefit from the forum, it will also involve an army of Saudi company officials seeking more exposure to Asian investors.
The May 9 conference shines a spotlight on the latest strategy of Hong Kong’s bourse operator to attract a new set of investors to replace those from the United States and Europe, who may be deterred from doing business in China at a time of rising geopolitical tensions. The initiative also comes after China’s securities regulator said last month it will encourage more firms to hold initial public offerings (IPOs) in Hong Kong.
HKEX has been having a tough time in recent years. The stuttering Chinese economy and increased sabre-rattling between Beijing and Washington have sapped investor interest in China-linked shares. The amount of funds raised by IPOs in the financial hub slumped to US$610 million (S$827 million) in the first quarter, the lowest level since 2009, while the bourse operator’s shares have slumped more than 50 per cent from their highs of early 2021.
HKEX chief executive Bonnie Chan is betting on the comeback of big ticket IPOs in the city. Speaking at the May 9 event, she said there are 100 applications in the pipeline and more expected to come.
“What we’ve seen lately, in the last two weeks of April, it’s giving us a lot of hope,” she said.
The appeal of closer ties with China are clear from the Saudi Arabian side too. Crown Prince Mohammed bin Salman is working to increase foreign ownership and pump liquidity in publicly traded stocks under the kingdom’s Vision 2030 agenda.
In contrast with Hong Kong, the Saudi stock market has been going from strength to strength. Market capitalisation of the bourse has climbed 11 per cent over the past three years, while Hong Kong’s has dropped 25 per cent.
Saudi Arabia’s stock exchange is also enjoying a fresh burst of IPO activity in recent weeks and said more than 10 applications for listings have been approved. Upward of 50 companies have launched applications, Tadawul stock exchange CEO Mohammed Al-Rumaih said on May 9 at the conference.
Since November, investors in Hong Kong have been able to gain exposure to the Saudi market through the CSOP Saudi Arabia exchange-traded fund (ETF), the first ETF of its kind in Asia. The ETF debuted in November with more than US$1 billion in assets and the backing of Saudi Arabia’s sovereign wealth fund. Even so, it only attracted around US$12 million in funds from its inception to April 24, according to calculations from Bloomberg Intelligence.
CSOP Asset Management is working with asset managers to obtain regulatory approval for a cross-listing of the ETF in Shanghai, which should hopefully take place in the second half of this year, said Ms Melody Xian, deputy CEO at the money manager in Hong Kong.
Hong Kong announced on May 9 that it is working with Saudi Arabia to launch an ETF in Riyadh that tracks Hong Kong’s stock indexes. Formal negotiations have begun for an “investment promotion and protection agreement” between the two hubs, said Mr Michael Wong, Hong Kong’s deputy financial secretary.
Hong Kong Chief Executive John Lee has long touted his ambitions to persuade the world’s top oil producer Saudi Aramco to seek a dual-listing in the Asian financial centre. While there’s no sign of that happening in the near future, it would be a huge vote of confidence in the city’s exchange if it takes place.
When asked about the potential for Saudi Arabian companies to cross list in Hong Kong, Mr Al-Rumaih said “we want to have a path ready for them in case they decide to do so”. BLOOMBERG
