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Opening up new markets and attracting new capital

Last week, Asia’s first Saudi Arabia Exchange-traded Fund (ETF) was listed in Hong Kong, allowing local and international investors to invest in the constituent index of the Saudi stock market through Hong Kong’s market using Hong Kong Dollar or the Renminbi, and share the opportunities presented by developments in the Middle East. Indeed, the ETF has the largest asset size among similar products globally.

The listing of this ETF is a new milestone on strengthening the two-way capital flows between Hong Kong and the Middle East, highlighting Hong Kong’s crucial function as a key link for financial connectivity under the Belt and Road Initiative.

As pointed out by the representative of the Saudi Arabia’s Public Investment Fund (PIF), the launch of the product in Hong Kong offers Asian investors a unique opportunity to understand Saudi Arabia’s development. They would be able to see more clearly Hong Kong’s role as a “dual gateway” connecting Mainland China and global investors and financial markets. Hong Kong’s deep pool of capital and talent, as well as its vibrant financial ecosystem, are on display. It can be anticipated that following the listing of the ETF, cooperation between Hong Kong and the Middle East will further expand, with deeper and broader two-way flows of capital, talent, and information.

Since the beginning of this year, the performance of Hong Kong’s stock market has been depressed to a certain extent due to factors such as global interest rate hikes, geopolitical tensions, and uncertain recovery prospects. However, certain segments of the market have still achieved remarkable development. Taking the ETF market as an example, the inclusion of ETFs in Stock Connect in July last year has further expanded the investor base in the Hong Kong market. Together with the implementation of various facilitative trading measures, Hong Kong’s ETF market has continued to grow this year, with a daily average turnover of HK$11.6 billion in the first ten months, representing a 25% year-on-year increase. Currently, Hong Kong’s ETF products cover thematic investments, fixed income, and virtual assets, with trading counters available in Hong Kong Dollar, the Renminbi, and US Dollar. Hong Kong is also the first Asian market to offer Bitcoin futures and Ether futures ETFs. The listing of the Saudi Arabia ETF is expected to further enhance the global connectivity of Hong Kong’s ETF market and consolidate our position as a leading ETF market in Asia.

Attending the ceremony for the listing of the Asia’s first Saudi Arabia ETF in Hong Kong.

While the global political and economic environment has brought different kinds of challenges to markets around the world, it has also brought new opportunities and possibly even more new partnerships.

According to the International Monetary Fund (IMF), the Asia-Pacific region as a whole is forecast to grow by 4.6% this year, higher than the global average and contributing to two-thirds of global growth. Next year, Asia’s growth is expected to remain at about 4.2%. Meanwhile, the ten ASEAN member states, with a relatively young population and a growing middle class, have immense growth potential. According to the World Economic Forum’s forecast, ASEAN will replace Germany as the world’s fourth largest economy by 2030.

The Middle East is also a strong source of development momentum. For example, Saudi Arabia has put forward “Vision 2030”, which proposes forward-looking directions and a concrete action plan to promote the structural transformation and diversification of the country’s economy. At the 2023 United Nations Climate Change Conference (COP 28) which has just begun in Dubai in the United Arab Emirates, countries in the Middle East also showed enthusiasm in participating in promoting energy transformation. In recent years, in light of geopolitical risks, they have also recognised the need to diversify their investments and channel them into different categories. Hong Kong, as an important hub connecting the Mainland, Asia and global capital markets, would be an ideal choice for them to invest in. Timing and geography have created new opportunities for Hong Kong to deepen financial cooperation with the Middle East on various fronts.

It is, of course, important to connect with people. Over the past year, the Chief Executive, myself, other Government officials, and members of the Hong Kong Inc. paid a number of visits to the Middle East and the ASEAN countries. We proactively reached out to local political and business leaders and stepped up efforts to promote Hong Kong’s new advantages. There has been a strong willingness on both sides to strengthen collaboration. Through persistent and diligent efforts, we have built wider and stronger foundations of mutual trust and created possibilities for deeper co-operation.

On Thursday and Friday this week, Saudi Arabia’s Future Investment Initiative Institute will organise the inaugural FII PRIORITY Asia Summit in Hong Kong. This Summit, with the theme of “Megatrends Shaping Humanity”, will gather representatives of the Saudi government and sovereign wealth fund. It will also bring together political, business, financial leaders and investors from all around the world to explore Asia’s rapid urbanisation and digital transformation, and how Asia will drive the megatrends of tomorrow. The fact that the Summit is coming to Asia for the first time and has chosen Hong Kong as the destination is significant. It symbolises Hong Kong’s important status in connecting the Middle East and Asia. I will attend one of the panel discussions and discuss with other speakers on how to strengthen cooperation among countries in the Global South, and promote more inclusive and sustainable development for the global economy.

Representing the HKSAR Government to sign the Co-operation Memorandum of the Fifth Plenary Session Hong Kong/Beijing Co-operation Conference last week.

While we strive to build relationships externally with our partners in Asia and the Middle East to attract new capital, we also keep reinforcing the exchanges and connections with Mainland provinces and cities to jointly promote collaborations in various fields, with a view to capitalising on the opportunities brought by the domestic circulation. Last week, the Fifth Plenary Session of the Hong Kong/Beijing Co-operation Conference was held in Hong Kong, during which the two cities signed a number of co-operation documents, including the Memorandum of Understanding (MOU) on Enhancing Hong Kong-Beijing Co-operation on the Development of the Financial Industry, which enables us to start a new chapter beyond our traditional ties of financial co-operation with Shanghai and Shenzhen. Earlier in June this year, the Hong Kong Exchanges and Clearing Limited signed an MOU with the Beijing Stock Exchange in support of cross listings of qualified listed companies in each other’s market. The Exchanges of the two places will also work closer together in such areas as green finance, financial technology and exchange of talent.

The world is undergoing profound and accelerated changes unseen in a century in a complicated political and economic landscape. Hong Kong, being a small, fully-open and externally-oriented economy, would be greatly affected by changes in the external environment. We must strive to find new partners and develop new markets, so as to make our economy and financial market more resilient. We must see the situation clearly and respond sensibly. The road ahead will be full of challenges. But as we make good use of our advantages and seize the coming opportunities, we can certainly move forward firmly and steadily.

With efforts made to consolidate our status as an international financial centre and promote economic development, we will have greater room to improve people’s livelihood. Community affairs, be they big or small, are closely related to our everyday life and require our attention and participation. The District Council Ordinary Election to be held on 10 December (next Sunday) presents us with a vital opportunity to take part together in community building. Please remember to come out to vote. Let’s join hands to make our community and our home a better place!

December 3, 2023