Why Hong Kong Seeks Increased Business Opportunities with Saudi Arabia

This marks the first time that the leader of Hong Kong has extended a welcome to Saudi Arabian elites for an investment conference, signaling a willingness to embrace new business partners amid economic challenges and geopolitical instability. In his opening statements on Thursday, Chief Executive John Lee described the gathering as "another important milestone in strengthening the relationship between Hong Kong and the Middle East, specifically the Kingdom of Saudi Arabia."

The Hong Kong government, its stock exchange, and the Future Investment Initiative (FII) Institute, a nonprofit founded by the Public Investment Fund (PIF), Saudi Arabia's sovereign wealth fund, organized the two-day event. The FII Institute holds an annual event in Riyadh known as "Davos in the Desert."

This year, Hong Kong has been actively seeking more business opportunities with Saudi Arabia in an effort to mitigate the impact of US-China tensions. These tensions have increased the risk of Western companies reducing their operations in Hong Kong, a semi-autonomous Chinese city, according to Willy Lam, a senior China fellow at the US think tank, the Jamestown Foundation.

He described the summit as a boost for Hong Kong's economy, which has been negatively impacted by the departure of foreign talent, a decrease in property values, and a decline in the number of foreign companies using the city as a regional center.

Lam stated that "Saudi Arabia could be a significant opportunity for Hong Kong" due to the size of its economy and its strong partnership with China, as evidenced by a strategic partnership agreement signed between the two countries last year.

George Chan, a global IPO leader for EY based in Shanghai, also commented that the summit presented an opportunity for Hong Kong to further its objective of diversifying economic partnerships in the face of complex global challenges.

Market slump

Officials in Hong Kong have good reason to be casting a wider net. In the face of a global slowdown, the city is suffering a drought of initial public offerings (IPOs).

The IPO market is currently experiencing its worst year since 2003, with proceeds of just under $4.6 billion raised as of early December, according to data provider Dealogic. The government is taking action to address this issue, as evidenced by Lee's trip to Riyadh in February to meet with the CEO of state-owned oil company Saudi Aramco, the world's third most valuable company. During this meeting, the idea of a listing in Hong Kong was discussed, as stated by a government announcement.

In 2019, Aramco launched its largest IPO in Riyadh. Chan commented that a successful Aramco offering could revitalize the Hong Kong IPO market, positioning the city as the preferred gateway connecting Middle Eastern and Asian markets in the long term. PIF Governor and FII Institute Chairman Yasir Al-Rumayyan, who also chairs Aramco, did not discuss the possibility of a secondary listing on Thursday.

When asked about the issue during an interview with CNN's Marc Stewart on Thursday, Laura Cha, chair of the Hong Kong stock exchange, mentioned that she could not comment on individual companies, but added that "we have a healthy pipeline." The Hong Kong stock exchange has recently streamlined the process for such listings to occur, having included the Saudi stock exchange to its list of recognized exchanges in September. This now allows Saudi-listed companies to apply for a secondary listing in the city.

Hong Kong recently launched Asia's first exchange-traded fund (ETF) to monitor the performance of Saudi Arabian equities, providing investors with a convenient way to invest in the largest publicly traded companies in the Gulf country.