- Chinese investors turned to Saudi Arabian ETFs as local Chinese equities underperformed and sought higher returns overseas.
- The two new Saudi-focused ETFs debuted with impressive gains, reflecting Chinese traders’ strong appetite for diversified international investments.
OUR TAKE
Chinese investors are broadening their horizons by putting money into ETFs focused on Saudi Arabian stocks. They’re attracted by the promise of better returns than the underperforming local stocks at home. Right out of the gate, two popular Saudi ETFs have attracted attention by trading well above their net asset values, showing just how much interest there is. These ETFs are particularly attractive because they invest in financial sectors known for good dividend yields, making them a smart choice for investors looking for solid returns. This move is a clear indicator of changing global economic patterns, with Chinese investors increasingly making their mark on international markets.
—Heidi Luo, BTW reporter
What happened
Two new Exchange Traded Funds (ETFs) focused on Saudi Arabian equities were launched in China and saw significant trading volumes and price spikes from the outset.
This launch marks a significant pivot by Chinese investors into Saudi Arabian markets, driven by the search for more lucrative returns relative to underperforming local Chinese equities.
The enthusiasm for these ETFs is fuelled by the deepening economic and trade ties between China and Saudi Arabia, which have seen a flurry of multi-billion dollar investments in sectors such as technology, solar power and electric vehicles.
“Chinese investors are thirsty for better returns from overseas assets as returns from Chinese assets are too thin,” said Nelson Yan, co-chief investment officer at Fosun Wealth International in Hong Kong.
“The relationship between China and Saudi Arabia is good from an investment point of view, and the geopolitical risk is less.”
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Why it’s important
The Shanghai-listed Huatai-PineBridge CSOP Saudi Arabia ETF QDII initially traded at a significant 17% premium to its net asset value (NAV), but settled at a 3.8% premium by 24 July.
Similarly, the Shenzhen-listed China Southern Asset Management CSOP Saudi Arabia ETF QDII traded at a 6% premium to its NAV on the same day. These premiums are notable as the vast majority of ETFs typically trade within 1% of their NAV.
However, the excitement surrounding these ETFs led to trading suspensions on 18 July after their share prices significantly exceeded their NAV, which led to a temporary halt by market regulators to stabilise trading dynamics.
Once trading resumed, the premiums on these ETFs over their NAVs narrowed but remained high.
In January, Chinese mutual funds introduced restrictions on purchases of US equity-focused funds to dampen investor enthusiasm. At the same time, some funds shifted qualified domestic institutional investor quotas to Japanese ETFs to bring their market prices closer to their NAVs.
“The Saudi ETF index coverage is in line with the current risk preference of domestic Chinese stock market investors,” said Ren YuChen, an investment consultant at Guotai Junan Securities Company. “The relatively high dividends of financial and resource stocks also give them a competitive advantage in terms of dividend yield.”
