China to receive up to $2tn in Middle East sovereign investments by 2030, HKEX CEO says

Aggregate investment capital of regional state funds is likely to rise to $10tn by the end of the decade, Nicolas Aguzin says

Nicolas Aguzin, chief executive of Hong Kong Stock Exchange, expects 10%-20% of Middle East sovereign investments to go to China by 2030. Bloomberg

China, the world’s second-largest economy, is set to receive $1 trillion to $2 trillion in investments from top sovereign funds in the Middle East by 2030 as they look to pivot to Asia amid a rapid rise in their investment capital, the chief executive of Hong Kong Stock Exchange (HKEX) has said.

The state-controlled wealth funds in the region currently have about $4 trillion in investment capital available and only a small portion of that – approximately 1 per cent to 2 per cent – is being invested in Asia, particularly China, Nicolas Aguzin told delegates at the 10th Arab-China Business Conference in Riyadh on Monday.

This investment capital is expected to grow to about $10 trillion by the end of this decade and “we estimate somewhere between 10 per cent and 20 per cent will be invested in China”, said Mr Aguzin, a former JP Morgan banker.

“Think about what that means. That’s about $1 trillion to $2 trillion that will be reallocated in investments in that part of the world.”

Sovereign wealth funds in the Middle East, which are some of the largest in the world, invest on behalf of their governments to generate long-term returns.

Sovereign funds in the six-member economic bloc of the GCC, including the Public Investment Fund in Saudi Arabia, Qatar Investment Authority and Kuwait Investment Authority, as well as Abu Dhabi Investment Authority and Mubadala Investment Company in the UAE, channel the Gulf nations’ hydrocarbon wealth across assets classes including debt and equity capital markets.

Sovereign funds that hold significant stakes in publicly listed companies across the world have started pivoting to the broader Asia region, particularly to China as their economic growth continues to outpace the global average.

China is a “unique opportunity, especially when we think about the Middle East” and how that can tap into the rapid development of the Chinese capital market, Mr Aguzin said.

“That is really massive” and is something a “lot of people in the audience today are focused on”, he added.

China, he said, is also home to one of the biggest pools of investment capital: the Chinese domestic savings, both retail and institutional, which are growing at a rapid pace.

That pool of investment has so far been focused primarily on opportunities in China’s domestic market.

However, with China being the main trading partner of about 140 economies in the world, this capital will start to move out of the country and flow to eastern and western markets, which also bodes well for trade in the Middle East, Mr Aguzin said.

“We will start to see more of that capital coming out of the mainland and going internationally,” he said.

The economic ties between China and the Arab world, especially with Saudi Arabia, are growing rapidly and there is ample room for further growth, especially in capital market relation between the two countries, Khalid Al Falih, Saudi Arabia’s Minister of Investment, told policymakers, government officials, investors and executives from top companies in China and Saudi Arabia on Sunday at the opening of the two-day summit in Riyadh.

In February, HKEX signed a preliminary agreement with the Saudi Tadawul Group Holding, the operator of Tadawul stock exchange, the biggest bourse in the Arab world.

The pact allows the two bourses to explore co-operation in areas of cross listings, FinTech and environment, social and governing standards.

It also allows working on a framework of cross listing providing easier access to investors in both exchanges.

The close co-operation between Tadawul and HKEX will continue to grow and “we hope this will extend to the Shanghai Stock Exchange”, leading to “joint listings of companies” in both markets to accommodate the flow of funds, Mr Al Falih told delegates on Sunday.

The 10th conference marked its first day with the signing of $10 billion in investment agreements, spanning more than 30 deals across sectors including technology, renewables, agriculture, property, minerals, supply chains, tourism and health care.

A $533 million deal between the AMR ALuwlaa and Zhonghuan International Group from Hong Kong to set up an iron ore factory, and a $500 million agreement between Saudi Arabia’s ASK Group and China National Geological & Mining Corporation for the Arabian Shield copper mining project were among the major businesses-to-business deals.

Government-to-business agreements included a $5.6 billion deal between the Saudi Ministry of Investment and Chinese developer of autonomous driving technology Human Horizons, to set up a joint venture for the research, development, manufacturing and sale of electric vehicles.