Chinese investors are aggressively investing in two new exchange-traded funds (ETFs) focused on Saudi Arabian shares, driven by the lackluster performance of local equities and the increasing allure of foreign assets. Upon their debut on July 16 in Shanghai and Shenzhen, the Saudi-focused ETFs surged by the daily 10% limit during their first two trading days. This led to their temporary suspension on July 18 after managers alerted exchanges about an excessive premium of share prices over net asset value.
The excitement around these ETFs aligns with strengthening economic and trade relations between China and Saudi Arabia. Recently, both nations have inked billion-dollar deals spanning the tech industry, solar power, and electric vehicles. “Chinese investors seek better overseas returns as local yields are minimal,” noted Nelson Yan of Fosun Wealth International. Additionally, Chinese governmental and financial entities are intent on leading investments into the Middle East, with particular interest in developing related indexes and ETFs.
The Huatai-PineBridge CSOP Saudi Arabia ETF QDII, listed in Shanghai, saw a premium of up to 17% over its net asset value (NAV) on its second trading day, which later reduced to 3.8% by July 24. Similarly, the China Southern Asset Management CSOP Saudi Arabia ETF QDII in Shenzhen traded at a 6% premium. For context, most ETFs typically trade within 1% of their NAV.
The current enthusiasm mirrors past trends where Chinese investors favored equities from specific countries, like the US and Japan. Despite the Saudi market’s exotic appeal, investors are optimistic about the bilateral ties and eager to gain insights, according to Melody Xian He of CSOP Asset Management Ltd.
Both Saudi Arabian ETFs track the FTSE Saudi Arabia Index, heavily weighted with financials, basic materials, and energy firms, including Al Rajhi Bank, Saudi Aramco, and Saudi National Bank. This index composition aligns with the domestic Chinese investors’ risk preference and offers competitive dividend yields, states Ren YuChen from Guotai Junan Securities Co.
Original Story https://www.livemint.com/news/world/china-investors-pile-into-saudi-etfs-as-two-nations-grow-closer-11722213780518.html
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