Recently, news developments relating to the Middle East in the Hong Kong stock market have been more frequent than before:

On November 24, according to some market sources, PCCW (00008) is considering selling important minority interests in its optical fiber business at a price of about 1 billion US dollars (about HK$7.8 billion), and the related assets have attracted the interest of Chinese investors and Middle Eastern sovereign wealth funds.

On November 29, the Southern-East Anglo-Saudi Arabia ETF will be officially listed on the Hong Kong Stock Exchange. This is the first Saudi Arabian ETF in the Hong Kong stock market. The launch of the South East, England, and Saudi Arabia ETF means that Chinese asset management institutions are actively “going global” to lay out investment opportunities in the Middle East market.

On December 8, Yida Capital announced that its US$1 billion second-phase fund was invested by Jada, the parent fund company of the Saudi Public Investment Fund (PIF).

On December 10, Kingdee International announced that it reached a final agreement with the Qatar Investment Authority. The Qatar Investment Authority will invest about 200 million US dollars as consideration to subscribe to the common stock issued by Kingdee International under a general mandate.

According to industry insiders, the Middle East Sovereign Fund currently only invests a small portion of its capital in the Asian market (mainly China), and the capital invested in the Chinese market is expected to increase dramatically in the future.

There are a few phenomena that support this trend:

On the one hand, Middle East sovereign wealth funds have been intensively opening offices in China since this year. Recently, the head of the Saudi Public Investment Fund (PIC) announced that after opening an office in Hong Kong, it plans to open an office in mainland China; previously, in September of this year, the UAE sovereign wealth fund Mubadala Investment Company had just set up an office in Beijing.

On the other hand, the data shows that the holding positions of Middle Eastern capital in China are rising sharply. According to data from Societe Generale Securities, this share was 4.5% at the end of 2019, but by the end of the first quarter of this year, it had risen to 22.9%.

Trillions of dollars of Middle East capital will be invested in China!

According to public information, as of 2022, the total asset management scale of Middle East sovereign wealth funds reached 3.64 trillion US dollars, accounting for one-third of the total amount of global sovereign wealth funds. In terms of management scale, the current number one sovereign fund in the Middle East is the Abu Dhabi Investment Authority (ADIA), with a management scale of US$853 billion;

Followed by the Kuwait Investment Authority (KIA), with a management scale of US$803 billion;

Once again, it is the Saudi Public Investment Fund (PIF), with total assets under management of 776.7 billion US dollars;

Fourth is the Qatar Investment Authority (QIA), with a management scale of US$475 billion;

Fifth is the Dubai Investment Authority (ICD), with a management scale of US$320 billion;

Followed by Mubadala (Mubadala), the UAE's sovereign wealth fund second only to Abu Dhabi and the Dubai Investment Authority, with an asset management scale of US$276 billion, it is also the sixth largest sovereign wealth fund in the Middle East.

Hong Kong Stock Exchange CEO Ou Guansheng said that he recently visited many cities in the Middle East and met with many investors, all of whom have shown keen interest in investing in China.

He expects that by 2030, the size of sovereign wealth funds in the Middle East will grow 150% from the current $4 trillion to $10 trillion. At that time, more than 10% to 20% (1-2 trillion yuan) of capital will be invested in the Chinese market.

What types of assets are most popular for capital in the Middle East?

The investment of Middle Eastern sovereign wealth funds in the Chinese market is nothing new.

As early as 2006, the Kuwait Investment Authority and the Qatar Investment Authority subscribed for US$720 million and US$206 million of shares respectively to participate in the ICBC IPO.

Since then, Middle East sovereign wealth funds have successively invested in various projects and enterprises in the Chinese market, covering various industries such as banking, insurance, telecommunications, aviation, automobiles, e-commerce, and technology.

In recent years, they have frequently appeared on the list of shareholders of A-share listed companies.

According to Flush data, by the end of the second quarter, the Abu Dhabi Investment Authority and the Kuwait Government Investment Authority had appeared in the top ten tradable shareholders lists of 26 and 36 A-share listed companies, respectively. The two sovereign wealth funds hold A shares with a total market value of 13.558 billion yuan.

The top five companies with the largest market capitalization held by the Abu Dhabi Investment Authority are: Zijin Mining, Dongfang Yuhong, Haida Group, Hengli Hydraulic, and Daquan Energy. The top five companies with the largest market capitalization held by the Kuwait Investment Authority are: Sanhua Intelligent Control, Hengli Hydraulic, Chenguang Co., Ltd., Maiwei Co., Ltd., and Satellite Chemical.

However, according to Guotai Junan's statistics for the end of the third quarter, the Abu Dhabi Investment Authority's choices for industries are quite diversified, but overall they tend to allocate cyclical industries. Since 2023, its share of pharmaceuticals, agriculture, forestry, fishery and animal husbandry, machinery and automobiles has remained stable at around 12%, 8%, 7% and 6%, and the allocation of media, home appliances, building materials, non-ferrous metals, electricity, and chemicals has been strengthened in stages in Q1, Q2 and Q3, respectively. As of the end of the third quarter of 2023, the top five major industries were: non-ferrous (23.33%), chemicals (17.97%), telecommunications (13.82%), pharmaceuticals (10.54%), and automobiles (7.59%).

The Kuwait Investment Authority favors the allocation cycle and the consumer sector, focusing in particular on investing in the four major segments of chemicals, home appliances, pharmaceuticals, and machinery. Specifically, the top five positions held by the Kuwait Investment Authority at the end of the third quarter of 2023 were: chemicals (30.39%), household appliances (20.83%), pharmaceuticals (17.43%), machinery (13.28%), and electronics (7.68%). In the first three quarters of 2023, the Kuwait Investment Authority maintained a high allocation weight for the four major industries of medicine, machinery, chemicals, and home appliances. As of the end of the third quarter of 2023, the above four industries accounted for 81.93% of its total A-share investment.

Also, according to announcements from A-share listed companies, since October, a number of A-share listed companies, including Xiling Power, BAIC Blue Valley, and Dongfang Shenghong, have announced that they have joined forces with Middle East Capital to cooperate in the fields of new energy vehicles, components, and petrochemicals by signing relevant agreements and jointly investing in the establishment of joint ventures.

Since this year, Middle East sovereign funds have also continued to buy Chinese assets in the Hong Kong stock market.

On June 20, NIO (09866) announced the signing of a share subscription agreement with Abu Dhabi investment agency CYVN Holdings. According to the agreement, CYVN Holdings will make a total strategic investment of about 1.1 billion US dollars in NIO through targeted issuance of new shares and transfers of old shares.

On August 26, the Abu Dhabi Investment Authority purchased nearly 157 million shares of Hong Kong-listed Fengxiang Shares (09977) through its institutions, with an average of HK$15,132 per share.

The Abu Dhabi Investment Authority, Mubadala Investment Company, and Qatar Investment Authority are also investing in the primary market.

Overall, judging from the direction of investment, capital in the Middle East focuses on various fields such as new energy, major consumption, biomedicine, and information technology.

Take the NEV industry as an example. According to incomplete statistics from the Superelectric Laboratory, since this year alone, more than 5 new car builders have signed cooperation agreements with Middle Eastern countries, including brands such as NIO, Gaohe, Skyrim, and Great Wall Huaguan. The Abu Dhabi Investment Authority received 7% of NIO Auto's shares and became an external investor with a shareholding ratio second only to Tencent; the Saudi Ministry of Investment signed a large order worth 21 billion Saudi riyals (about 5.6 billion US dollars, 40 billion yuan) worth 21 billion Saudi riyals (about 5.6 billion US dollars, 40 billion yuan), which is also the highest amount of cooperation between new Chinese car builders. Just in October, My Little Pony announced that it had received a US$100 million investment from New Future City (NEOM) in the Kingdom of Saudi Arabia (NEOM) and its investment fund NIF. Meanwhile, My Little Pony and NEOM plan to establish a joint venture in New Future City in northwestern Saudi Arabia to provide autonomous driving technology solutions to the region.

In the fields of information technology such as biomedicine, artificial intelligence, and the Internet, we can see from Mubadala's Chinese official website that it has more than 80 investment projects in China, including the Internet recruitment platform Boss Direct Recruitment (02076), the short video platform Kuaishou-W (01024), and the clinical research service company Novotech. Behind Xiyin, a popular cross-border e-commerce giant in the past two years, Mubadala Investment Company also appeared; in 2022, the Abu Dhabi Investment Authority invested in Haiguang Information; in early 2023, the Qatar Investment Authority and RTW Investments, a world-renowned industrial investor, jointly led Yuanqi Biotech...

The presence of capital from the Middle East has also appeared on photovoltaic and petrochemical tracks. In March of this year, Saudi oil giant Saudi Aramco bought 10% of China's Rongsheng Petrochemical for 24.6 billion yuan. The two sides cooperated on crude oil procurement, raw material supply, chemical sales, refined chemical product sales, crude oil storage, and technology sharing.

CITIC Securities pointed out that this is because Middle Eastern sovereign wealth funds tend to allocate manufacturing, utilities, raw materials, and optional consumption, etc. related to the domestic industrial structure. As the industrial upgrading strategies of major Middle Eastern economies advance, it is expected that in the future, the layout of China's dominant industries, such as new energy and advanced manufacturing, will be increased in line with their own development strategies.

Key speakers of sovereign wealth funds in the Middle East

1. Sheikh Tanoun bin Zayed Al Nahyan

Sheikh Tahnoon bin Zayed Al Nahyan (Sheikh Tahnoon bin Zayed Al Nahyan), a member of the UAE's royal family, oversees a $1.5 trillion investment empire, which includes two sovereign wealth funds, the region's most important private investment firms, the country's largest banks, and the largest publicly traded companies. According to Global SWF data, since the beginning of 2022, the Abu Dhabi Investment Authority, headed by Sheikh Tanoun, has been the second largest investment institution among major wealth funds in the Middle East.

Additionally, Sheikh Tanoun manages the UAE's Abu Dhabi Holdings Company (ADQ), which favors emerging market countries. The fund has bought billions of dollars in assets in Egypt and promised investments to help the Turkish economy; the fund also focuses on the cutting edge of food safety deals, including an agreement to acquire shares in Louis Dreyfus.

2. Sheikh Mansour bin Zayed Al Nahyan

Sheikh Mansour bin Zayed Al Nahyan (Sheikh Mansour bin Zayed Al Nahyan), a member of the UAE royal family, is well known as the owner of Manchester City FC. He is also the UAE's Vice President, Deputy Prime Minister, and Minister of the Presidential Administration. Sheikh Mansour is also the chairman of the UAE Investment Authority (EIA), which manages $90 billion in assets and is the largest shareholder of Vodafone (VOD.US).

In March of this year, Sheikh Mansoor was appointed Chairman of Mubadala Investment Company (MIC). This is another sovereign wealth fund in the UAE. It manages $276 billion in assets and invests mainly in Europe. Mubadala Investments also backed Rajiv Misra's $6.8 billion new entity and bottomed out tech companies during last year's valuation slump. From healthcare to finance, Mubadala Investments has been at the forefront of the UAE's diversification attempt to break away from its dependence on oil.

3. Yasser Rumayan

Yasiral-Rumayyan (Yasiral-Rumayyan), chairman of the Saudi Public Investment Fund, is one of the main people responsible for implementing Saudi Arabia's Vision 2030 strategy aimed at reforming the country's economy. From the $500 billion futuristic city of Neom, to deals that disrupt the global sports economy, to investments in mining, gaming, and technology, Saudi public investment funds are at the forefront of Saudi Arabia's diversification efforts.

Driven by rising oil prices last year, the Saudi public investment fund with assets of $760 billion has become the region's largest sovereign wealth fund since the beginning of 2022. The Saudi Public Investment Fund holds shares in state-owned oil giant Saudi Aramco, is also a major investor in Lucid Group (LCID.US), and holds shares in Electronic Arts (EA.US) and Nintendo.

4. Mansoor Almahmoud

Mansoor Al Mahmoud (Mansoor Al Mahmoud) is the CEO of Qatar Investment Authority. The Qatar Investment Authority holds shares in several companies, including mining giant Glencore, supermarket chain J Sainsbury Plc (J Sainsbury Plc), and automobile manufacturer Volkswagen AG (Volkswagen AG).

As one of the largest exporters of liquefied natural gas, Qatar has benefited greatly from soaring liquefied natural gas prices. Mansoor Almahmood said earlier this year that the fund will increase spending in Asia and the US and plans to invest in climate change, infrastructure and digitalization.