China and Saudi Arabia are currently in discussions to enable the listing of exchange-traded funds (ETFs) on each other’s stock exchanges, according to three sources familiar with the matter. This move represents a significant step towards expanding cooperation beyond traditional sectors such as energy and technology.
The Shenzhen Stock Exchange, one of China’s major bourses, is in negotiations with the Saudi Tadawul Group, the operator of the Saudi Stock Exchange, for a program known as ETF Connect. This collaboration would be China’s first ETF Connect outside of East Asia and demonstrates its commitment to opening up its vast financial markets to international investors.
Several major ETF operators in China have been informed about the possibility of a cross-listing agreement with Saudi Arabia, and are currently considering the option. However, the China Securities Regulatory Commission, the Shenzhen Stock Exchange, and the Tadawul Group have not yet provided any comments on the matter.
The cross-listing of ETFs would allow investors in both China and Saudi Arabia to trade funds that track specific stocks or bond indexes listed on each other’s stock exchanges. In recent years, China has launched ETF Connect projects with offshore stock exchanges in Hong Kong, Japan, South Korea, and Singapore, although trading volumes for these programs have not yet reached significant levels.
As of June, there were a total of 886 ETFs listed on the Chinese and Hong Kong stock exchanges, with a combined value of $256.8 billion. In comparison, Saudi Arabia’s ETF market is relatively new, with only eight products listed on the exchange. However, the country has one of the largest stock markets in emerging markets, with a capitalization of $2.7 trillion.
In addition to talks with the Shenzhen Stock Exchange, the Saudi Tadawul Group is also engaged in discussions with Hong Kong Exchanges and Clearing for a similar ETF Connect program. The two organizations signed an agreement in February to explore cooperation in various areas, including cross-listings.
While the Saudi ETFs would offer niche exposures in Arabic equity, bonds, gold, and U.S. equity, experts highlight the importance of local investors’ understanding of the market before making any investments.
China’s efforts to expand ties with countries in Europe, the Middle East, and Africa, including Saudi Arabia, stem from its frustration with what it sees as the weaponization of economic policies by the United States. Economic cooperation between China and Saudi Arabia has primarily focused on energy interests, but trade, investment, and security ties have been expanding. China is currently Saudi Arabia’s top trading partner, with trade worth $87.3 billion in 2021.
The growing collaboration between China and Saudi Arabia is evident through various deals, such as the $5.6 billion agreement between Saudi Arabia’s Ministry of Investment and Chinese electric car maker Human Horizons for the development and sale of vehicles. Additionally, Saudi Aramco, the oil giant, has increased its investment in China, finalizing a joint venture and acquiring an expanded stake in a petrochemical group.