Hong Kong- Saudi Arabia Launch Asia’s First Sharia-Complaint ETF 

The Premia BOCHK Saudi Arabia Government Sukuk ETF began trading on the Hong Kong Stock Exchange on Thursday. 

Hong Kong has yet again proved its prowess in the financial world with its newly launched exchange-traded fund (ETF), which tracks Saudi Arabia’s Islamic government bonds, also known as ‘sukuks.’ This is a major step taken by Hong Kong to strengthen its financial ties in the Middle East. 

The Premia BOCHK Saudi Arabia Government Sukuk ETF began trading on the Hong Kong Stock Exchange on Thursday. This sukuk allowed local investors to access the world’s second-largest market for Sharia-compliant debt securities. The Premia BOCHK ETF follows the iBoxx Tadawul Government & Agencies Sukuk Index and includes sukuk denominated in riyal and US dollar, by the Saudi government and related agencies.  

The ETF trades under stock codes 3478 for Hong Kong dollars and 9478 for US dollars. Approved by the Securities and Futures Commission of Hong Kong, it offers quarterly US dollar distributions, with a fee not upward of 0.35%, along with an expected annual tracking difference of around -2. 

It was launched at the Capital Market Forum, which was a two-day event hosted by Saudi Tadawul Group and Hong Kong Exchanges and Clearing Ltd., to facilitate more cross-border investments. This year’s theme was ‘Powering Connections’ and aimed at strengthening economic and capital market ties between the Middle East and East Asia. 

The fund was launched by Premia Partners, a home-grown ETF provider, and BOCHK Asset Management, a unit of the Bank of China, which is the third-largest lender in the country. HSBC has offered to provide cross-border fund services in both financial markets. Trading closed on day one with the fund jumping to 1.8% to HK$82.48 and 1.7% to $10.52. The iBoxx index, however, fell to 4.2% in local currency despite gaining 0.4% last year. 

This sukuk is the first of its kind in Asia and gives Hong Kong a much-needed push in the financial market, as it sets out to strengthen its ties with the Middle East, particularly as relations with the US are strained due to the ongoing tariff crisis and trade war escalation. Both Hong Kong and Saudi Arabia stand to emerge as important global financial hubs with such initiatives. Arab News reported that the Saudi Exchange CEO, Mohammed Al-Rumaih, said that such a partnership will bridge the gap between Eastern and Western Asia, and also strengthen ties with local and international investors. 

In his address at the Capital Market Forum, Financial Secretary Paul Chan Mo-po said that there is a large market for Islamic financing and that there is much room for discussions and deliberation between the market participants and the Islamic community. Mo-po emphasised the need to have an array of choices which comply with one’s beliefs and regulations befitting of these requirements. 

Financial ratings company Fitch Ratings revealed that the global sukuk market surged 11% to $961 billion last quarter, compared to the same period last year, and it estimates that it could cross the $1 trillion mark this year. Fitch Ratings also revealed that Malaysia, which has a 40% share, Saudi Arabia with 28%, and Indonesia with 11% make up the three biggest sukuk markets. This new fund shows the increasing global demand for sukuks as it offers regular income without offending the dictates of Islam.  

The securities included in the iBoxx index carry an A credit rating backed by Saudi Arabia’s large oil reserves. The launching of this fund at the Capital Market Forum indicates the Kingdom’s commitment to strengthening its financial markets, as part of its economic diversification plan, in line with Saudi Vision 2030. 

Before the ETF was launched, two ETFs worth $1.8 billion were listed in Riyadh last year, which offered Middle Eastern investors a chance to own top Hong Kong stocks. Julia Leung Fung-yee, CEO of Hong Kong’s Securities and Futures Commission that such sukuk ETFs could be launched in other Gulf countries as well. This indicates willingness from both, Hong Kong and Saudi Arabia to strengthen their financial and capital markets.