TWO exchange-traded funds (ETFs) tracking Saudi Arabian shares rose again by the daily limit of 10% yesterday after their launch on the Chinese mainland bourses Tuesday, despite warnings from one of the two asset managers that its ETF was trading apparently much higher above its net worth.

The two exchange-traded funds, respectively managed by Huatai-PineBridge Investments, the joint venture of Huatai Securities and PineBridge Investments, and China Southern Asset Management, offer mainland investors exposure to the stock market of the world’s 17th largest economy.

The two ETFs indirectly invest in the Saudi stock market through the CSOP Saudi Arabia ETF (HK: 2830), which was listed on the Hong Kong Stock Exchange by CSOP Asset Management, a unit of China Southern Asset, on Nov. 29, 2023. It was the first Saudi Arabia-focused ETF in the Asia-Pacific region.

The CSOP Saudi Arabia ETF tracks the FTSE Saudi Arabia Index. At the end of May, the five most weighted sectors in the FTSE Saudi Arabia Index were financial, raw materials, energy, utilities, and communications, at 42%, 17%, 9.5%, 9.2%, and 7.7%,  respectively. Among the top 10 constituent stocks, there are five banks, including Al-Rajhi Bank and the Saudi National Bank.

“The listed companies in Saudi Arabia are mainly financial institutions and resource companies that maintained high dividends in the past few years, providing a variety of choices for global investors,” Wang Yi, head of quantitative investment at CSOP, was quoted by xueqiu.com as saying last month.

“Unlike other emerging market countries where economic growth is largely dependent on foreign investment, Saudi Arabia is driven by internal reforms and government expenses,” Wang said, adding that the huge revenues from the oil business provide a strong guarantee for the implementation of the Middle Eastern country’s economic projects.

Since Saudi Arabia has a strong exchange rate policy keeping a lock between its currency and the U.S. dollar, the local capital market is almost unaffected by foreign exchange fluctuations, which gives global investors a unique opportunity to invest in emerging markets with stable exchange rates, Wang said.

The funds, which raised a total of 1.22 billion yuan (US$ 171.06 million), rank among the top Qualified Domestic Institutional Investor (QDII) programs, reflecting the growing appetite of Chinese investors for overseas assets.

Through cross-border ETFs, mainland investors can now invest in the stock markets of the United States, Germany, France, Japan, South Korea, Singapore, Saudi Arabia and China’s Hong Kong.

As the end of May, there were 68 cross-border ETFs listed on the Shanghai bourse, with a total worth of 207.5 billion yuan.

The Shanghai and Shenzhen bourses signed agreements respectively with Saudi Tadawul Group in September and December last year, to enhance capital market links and explore potential cooperation opportunities in cross-listing, fintech, data sharing and research, among other areas.(SD-Xinhua)