The first-ever exchange-traded fund (ETF) in Asia, focusing on Saudi equities, commenced trading in Hong Kong on Wednesday. This event marks a milestone in the strengthening ties between China and Saudi Arabia.

The ETF, named CSOP Saudi Arabia ETF and managed by CSOP Asset Management based in Hong Kong, features Saudi Arabia’s sovereign wealth fund, the Public Investment Fund (PIF), as a principal investor.

During its inaugural trading session, the CSOP Saudi Arabia ETF saw its value increase by 0.9%, contrasting with the broader Hong Kong market index’s decline of over 2%. According to Hong Kong’s Financial Secretary, Paul Chan, the introduction of this ETF allows widespread investors in the region to engage in and contribute to the growth of Saudi Arabia’s economy.

“We can expect to see more products to be made available in both the Hong Kong and the Saudi markets for our respective investor bases,”

said Paul.

The ETF is designed to mirror the performance of the FTSE Saudi Arabia Index, which comprises 56 entities with a combined market valuation of approximately US$276.8 billion as of the end of October. Over the past three years, this index has delivered a return of 45.3%.

The ETF presents an opportunity for investors in Hong Kong to invest in major Saudi stocks, such as the oil behemoth Saudi Aramco and the Saudi National Bank, using either Hong Kong dollars or Chinese yuan. HSBC, which provides services including trusteeship and custodianship to the fund, foresees the fund’s assets under management exceeding US$1 billion.

The launch of this ETF coincides with China’s strategic drive to broaden its diplomatic and economic ties, particularly in regions such as Europe, the Middle East, and Africa. This initiative is part of China’s response to what it perceives as the United States’ politicisation of economic policies, and includes efforts to deepen relations with nations like Saudi Arabia, a notable ally of the US.