Chinese investors are pouring money into two new exchange-traded funds tracking Saudi stocks after a dismal performance in local shares helped boost demand for overseas assets.
The two Saudi-focused exchange-traded funds (ETFs) made a strong start when they debuted in Shanghai and Shenzhen on July 16, with each jumping its daily limit of 10% in the first two days of trading. They were then suspended for part of the July 18 session after managers of the funds notified the exchanges that the premium of their units to their net asset value had become excessive.
Part of the excitement surrounding the ETFs stems from the growing economic and trade ties between China and Saudi Arabia. In recent months, companies and sovereign wealth funds on both sides have announced a series of multibillion-dollar deals ranging from technology to solar energy and electric vehicles.
“Chinese investors are hungry for better returns from overseas assets because the returns from Chinese assets are very low,” said Nelson Yan, co-chief investment officer at Fosun Wealth International in Hong Kong. “The relationship between China and Saudi Arabia is good in terms of investment, and the geopolitical risks are lower.”
Moreover, high-level Chinese government entities are keen to lead investments in the Middle East, and we see Chinese index companies keen to develop Middle East-linked indices and ETFs.
Big bonuses
The Shanghai-listed Huatai-PineBridge CSOP ETF, which tracks Saudi stocks, traded at a premium of 17% to its net worth on its second day of trading. The premium then narrowed to 3.8% on July 24, the latest date for which data is available. The Shenzhen-listed China Southern Asset Management CSOP ETF, which tracks Saudi stocks, traded at a premium of 6% on the same day. The vast majority of exchange-traded funds trade within 1% of their net worth, according to ETF.com.
The current enthusiasm for Saudi stocks is not the first time that Chinese investors have become fascinated with a particular country’s stocks.
In January, Chinese fund companies tried to cool investors’ enthusiasm for U.S.-focused funds by imposing restrictions on their purchases of their products. The same month, some fund companies were said to have allocated larger quotas to qualified domestic institutional investors in Japanese ETFs to bring unit prices closer to their net book value.
While the Saudi market may seem more exotic to Chinese investors than Japanese or U.S. stocks, investors were optimistic about relations between the two countries, said Melody Xian He, executive vice president of CSOP Asset Management Ltd. in Hong Kong.
