Editorial | Saudi ETF opens door to Islamic opportunity in Hong Kong

Hong Kong has long wanted to promote Islamic finance, but progress has been slow. Now, though, the time is more auspicious as the city seeks to diversify its financial services and business beyond Western or developed economies.

At the same time, countries in the Middle East are moving quickly to form new business links with China.

The latest fruit of this partnership is Asia’s first exchange-traded fund (ETF) tracking Saudi Arabia’s Islamic government bonds, or sukuk. Its debut will introduce local investors to a global market for Islamic financial products that is expected to be worth US$7.7 trillion by 2033.

Global interest in sharia-sanctioned financial products has been growing. Non-Muslim investors in places such as Malaysia and Indonesia, for example, have diversified into Islamic bonds, Islamic insurance, and profit-sharing schemes and “financing at cost plus a mark-up” that comply with religious stricture.

Hong Kong’s Saudi sukuk ETF, which can trade in both Hong Kong and US dollars, is a milestone. It will be the first time investors in Asia can tap into Saudi Arabia’s sharia-compliant bonds through the city’s stock exchange.

The kingdom’s Saudi Vision 2030 to modernise its economy is estimated to need US$3 trillion in investments. Though first-day trading turnover was modest at below HK$600,000 (US$77,000), it is expected to generate greater interest among investors.