CHINA and Saudi Arabia’s stock exchanges are in talks to allow exchange-traded funds (ETFs) to list on each other’s bourses, sources familiar with the matter said, as the countries look to deepen financial ties amid warming diplomatic relations.

The talks are in the early stages, said the sources, and could mark a major first step by the two countries towards broadening cooperation beyond energy, security and technology sectors.

The Shenzhen Stock Exchange, one of the two major bourses on the Chinese mainland, is in negotiations with the Saudi Tadawul Group, operator of the Saudi Stock Exchange, for ETF Connect, as the program is called, two of the sources said.

For China, an “ETF Connect” tie-up with Saudi Arabia will be the first such beyond East Asia and affirm a commitment to open up its trillions of dollars worth of financial markets to international investors.

Some of China’s biggest ETF operators have been notified in recent months about the possibility of a cross-listing agreement with Saudi Arabia and some are considering the option, one of the sources said.

The cross-listing of ETFs will allow investors in China and Saudi Arabia to trade funds tracking specific stocks or bond indexes listed on each other’s stock exchanges.

The Chinese mainland has launched “ETF Connect” projects in recent years with offshore stock exchanges in Hong Kong, Japan, South Korea and Singapore.

Industry insiders said trading volumes for these programs have not yet taken off, although some products have proved popular.

The ICBC CSOP FTSE Chinese Government Bond Index ETF, launched by China’s CSOP Asset Management in 2020 under the “ETF Connect” program with Singapore, is one of the largest ETFs domiciled in Singapore.

At the end of June, a total of 886 ETFs worth US$256.8 billion were listed on the Chinese mainland and Hong Kong bourses, according to Morningstar’s data.

Saudi Arabia’s ETF market is relatively nascent with only eight products listed on the exchange, although it is one of the biggest stock markets in emerging markets with a US$2.7 trillion capitalization.

Hong Kong Exchanges and Clearing Ltd. is also in separate talks with its Saudi counterpart for a similar program, said one of the sources. (SD-Agencies)