Middle East Investments
Hong Kong is now a critical conduit for investment, trade and development for the Middle East. Sovereign wealth funds from Saudi Arabia and the United Arab Emirates are set to establish US Dollar denominated Hong Kong-based vehicles to invest in the ongoing expansion of the Greater Bay Area economy, and access Mainland China and Asia-Pacific markets.
The resulting capital streams will create new opportunities at scale, enabling family offices to invest in fintech, infrastructure, technology, telecommunications and cultural enterprises. Public and private sector leadership in all three jurisdictions are also laying the groundwork for high level enterprises from the Middle East to cross-list on Hong Kong’s stock exchange.
Saudi Arabia and the UAE are among the wealthiest economies in the Middle East, with a GDP of 833.5 billion USD and 415 billion USD, respectively. This year, the Hong Kong government is building on mutual commitments previously established with its counterparts in the region.These include the UAE-Hong Kong Investment Promotion and Protection Agreement, a Memorandum of Understanding (MOU) on fintech cooperation between the Hong Kong Monetary Authority and the Central Bank of the UAE, and the establishment of Hong Kong’s first Economic and Trade Office in the Middle East.
In February 2023, the Hong Kong government’s chief executive, John Lee Ka Chiu, led a delegation of key private sector representatives, including the head of Hong Kong Exchanges and Clearing (HKEX), on a high-profile work trip to the Middle East. In Saudi Arabia, Hong Kong signed six new agreements, including a commitment between HKEX and Saudi Tadawul Group Holding Co for both stock exchanges to collaborate in the areas of fintech, ESG, and secondary listings.
In a joint statement with HKEX, Khalid Al-Hussan, CEO of Saudi Tadawul group, emphasized the necessity for jurisdictions to work closely together in light of the changing landscape of international finance. “With global capital markets evolving, it is…important for us to work together to exchange information and align on best practice to elevate our capital markets and enhance the experience for issuers and investors alike,” said Al-Hussan, commenting on the agreement.
Nicholas Aguzin, the head of HKEX, described the cooperation agreement in terms of open markets and long-term mutual interest.“…Signing an MOU with Saudi Tadawul Group [reflects] HKEX’s ongoing commitment to driving global connectivity and shaping a successful shared sustainable future.”
Establishing stronger cooperation and connectivity between regional financial systems is vital to long-term strategies to diversify the economies of Saudi Arabia and the UAE, which have historically centered around the oil and gas industry. While the shift away from dependence on the export of crude oil has been underway for decades, geopolitical complexities are accelerating the reconfiguration of economic strategies that had largely been underpinned by the post-cold war status quo.
The military conflict between Russia and Ukraine and the resulting sanctions imposed by the United States on Russia, as well as a subsequent decision by Opec+ to cut oil production, has altered the calculus for governments and investors alike. Strategic competition between the United States and China, which has complicated bilateral relations between the world’s two largest economies, also contributes to the trend towards multipolar transnational ties.
As such, Saudi Arabia’s Vision 2030 and the UAE’s We are UAE 2031 strategic development frameworks create new opportunities in finance, business, infrastructure, energy, transport, healthcare, education and tourism.
The UAE’s sovereign wealth fund, Mubadala Investment, holds assets worth USD 284 billion in more than 50 countries and was won the global SWF’s 2021 fund of the year award for outperforming global forecasts. Mubadala Investment’s, Khaldoon Khalifa Al-Mubarak has expressed a keen interest in Asia for 2023, citing the pace of China’s recovery from the pandemic as a decisive factor.
Shifts in the economic and geopolitical landscape have also galvanized the development of Middle East segment of the Belt and Road Initiative (BRI), which is showcased by the China-UAE Capacity Cooperation Demonstration Park, a joint venture built in the Khalifa industrial zone in Abu Dhabi.
China now reallocates BRI investments from Russia towards projects in the Middle East, as part of its strategy to expand its presence in the Arab Gulf region. In conjunction with the China-Pakistan Economic Corridor and the China-Central-West-Asia Economic Corridor, China aims to strengthen regional infrastructure connectivity and economic ties across Asia and the Middle East.
As a super-connector between China and the rest of the world, Hong Kong plays a key role in financing enterprises across sectors, from AI and smart city development to cultural infrastructure. In his speech at the Abu-Dhabi-Hong Kong business forum, Hong Kong’s leader, John Lee, emphasized the city’s role as an international hub for arts and culture, under the 14th Five Year Plan, which mirrors Abu Dhabi’s ongoing initiatives to build a global ‘cultural powerhouse’.
However, Hong Kong’s existing ties with its core markets in Europe and North America continue to play a major role in the city’s development. Diversification and developing relationships with new partners reflect 2023’s multipolar global economy, which allows for a greater depth of economic engagement than ever before. Hong Kong’s long-term expansion and development as Asia’s world city continues to create unique investment opportunities across the world, as a primary channel for China’s outbound global investment as well as an international financial center.
We will continue to keep you updated on major developments in Hong Kong’s business landscape. In the meanwhile, if you would like to explore new opportunities and partnerships in Asia and Europe, we are always available for a free initial consultation.