Hong Kong is extending its hand towards Saudi Arabia, hoping to attract investment capital and reignite its stock market. This outreach comes amid a period of sluggish performance for Hong Kong's bourse, contrasted with Saudi Arabia's strong market growth.
The effort to lure Saudi investment is underscored by a conference co-organized by the Hong Kong Exchanges and Clearing (HKEX) and the Saudi Tadawul Group. This timely event serves a dual purpose:providing a platform for Saudi companies to gain exposure to Asian investors, while simultaneously attracting much-needed capital inflows to bolster Hong Kong's financial hub status.
Hong Kong's stock market has faced headwinds in recent years. The market capitalization has shrunk by 25% over the past three years. This lackluster performance stands in stark contrast to Saudi Arabia's Tadawul stock exchange, which has seen its market capitalization surge by 11% during the same period. The Saudi market's robust performance is further bolstered by a sustained inflow of foreign capital, particularly since its inclusion in the MSCI emerging markets benchmark in 2019.
Despite the current disparity, opportunities exist for increased collaboration. Hong Kong investors already have a gateway to the Saudi market through the CSOP Saudi Arabia exchange-traded fund (ETF), the first of its kind in Asia. Launched in November 2023 with over US$1 billion in assets and the backing of Saudi Arabia's sovereign wealth fund, this ETF signifies the potential for further integration between the two financial markets.
The HKEX is actively courting Saudi investment by showcasing Hong Kong's strengths as a financial center. Hong Kong's deep pool of liquidity, robust regulatory framework, and expertise in handling initial public offerings (IPOs) are all attractive propositions for Saudi companies seeking to expand their reach.
The success of Hong Kong's courtship efforts remains to be seen. Geopolitical considerations and global economic uncertainties may play a role in how much Saudi capital flows into Hong Kong's market. Nevertheless, the ongoing dialogue and collaborative initiatives signal a growing recognition of the potential benefits of mutual investment opportunities. By fostering closer ties with Saudi Arabia, Hong Kong hopes to rekindle its once vibrant stock market and solidify its position as a leading financial hub in Asia.