‘Untapped world’ of opportunities for China and Mideast
China and the Middle East have the potential to revitalise their historical links through financial collaboration, but more mutual understanding is needed, according to Wei Zhen, a managing director at MSCI.
The index provider, which first included Saudi Arabian stocks in its Emerging Markets Index in 2019, has helped put the kingdom on the map of international investors, as the index provides a benchmark to gauge the market’s movement and performance.
As the relationship between China and the Middle East continues to deepen, capital market investors will be presented with more financial products and investment opportunities.
That scenario was an “untapped world”, Wei said, because few Chinese investors previously paid attention to Saudi Arabia – and vice versa. Both communities have a learning curve to conquer in terms of not only the investment landscape, but also investor preferences.
“Chinese investors will increasingly find familiarities with assets, [companies] and targets in Saudi Arabia and the Middle East, while the Middle East and Saudi investors need to build familiarities with the assets here,” he said.
China has become the largest greenfield foreign direct investor in Saudi Arabia. Its investment in the kingdom grew by 11 times to US$16.8 billion last year from 2022, according to a report from Emirates NBD.
“The foreign direct investment between the two countries is rising healthily in a lot of fields related to electric vehicles, energy and construction,” said Wei, who is MSCI’s global head of China research.
“The next phase of opportunities should be the financial market, to carry the role of helping to finance this type of growth.”
For example, many investors are looking to invest in the renewable energy sector. To cater to this need, MSCI has a portfolio construction tool that helps investors screen securities with high or low exposure to the sector and develop strategies to capitalise on opportunities.
On the index front, in 2018, MSCI and the Saudi Exchange partnered to develop a joint tradeable index, the MSCI Tadawul 30 Index, which tracks the 30 largest and most liquid securities listed on the Saudi stock market. The index can be used as a base for financial products, including derivatives and exchange-traded funds (ETFs).
Last week, the Hong Kong government confirmed an ETF tracking the city’s benchmark stock index was in the works and was expected to list for trading on the Saudi Exchange. It would complement the Hong Konglisted CSOP Saudi Arabia ETF, which tracks 56 Middle East stocks.
With the increased financial activity between the two nations, it was essential to understand the two pools of investors varied in their preferences and views of investment opportunities, Wei said.
Chinese investors will increasingly find familiarities with assets ... in Saudi Arabia and the Middle East WEI ZHEN, MANAGING DIRECTOR, MSCI
For example, many Arab investors adopt sharia-compliant investing principles, which promote ethical and socially responsible financial practices. Starting in 2007, MSCI launched its MSCI Islamic Index series to cater to this.
MSCI believes working with key stakeholders across Saudi Arabia, the mainland and Hong Kong will foster increased connectivity between the respective capital markets.
Wei is confident the increased collaboration between China and Saudi Arabia will yield results, as the two regions have roots of trust and interaction dating back thousands of years.
“We see the connectivity in the financial market is just beginning in the discussion,” he said. “Hopefully, there will be more connectivity that will bring the capital to meet the end investors.”