MIDDLE EAST MONEY FLOWS EAST

GEOPOLITICS IS DRIVING MIDDLE EASTERN MONEY TO ASIA AS WEALTHY INVESTORS SEARCH FOR A WAY TO HEDGE A U.S.-DOMINATED SYSTEM.

- NICHOLAS GORDON

LAST OCTOBER, Hong Kong's highest-ranking financial minister trooped to Riyadh, Saudi Arabia's capital city and the home of the Tadawul, its stock exchange. Surrounded by Saudi officials, Paul Chan pressed a button to launch the Middle East's largest exchange-traded fund. The new ETF has $1.2 billion in assets under management, tracking 30 sharia-compliant companies that trade in the Chinese city. (One company that was excluded? Megabank HSBC, for charging interest.) Chan and several of his peers, including Hong Kong Exchanges and Clearing CEO Bonnie Chan (no relation), are now regular visitors to the Middle East as the Chinese city tries to build ties with new sources of capital in the Gulf.

"The Hong Kong-Dubai Cathay Pacific flight has just been packed the last three to four years," says Frederic Neumann, chief Asia economist at HSBC (who notes that he, too, has been "traveling to the Middle East much more").

Hong Kong is just one Asian economy trying to court Gulf money—and not just from retail investors. Middle Eastern sovereign wealth funds, whether it's Saudi Arabia's trillion-dollar Public Investment Fund (PIF) or the UAE's array of institutions, are shifting their focus to the East. Investors in the Gulf are looking to diversify their investments-and Asia, with its young populations, vibrant tech sectors, and fast-growing economies, offers the most exciting opportunities.

"Gulf countries need to find new markets, and the new markets which are most compelling are in Asia," explains Vasuki Shastry, a Dubai-based senior advisor at geopolitical risk firm Gatehouse Advisory Partners. "If they can partner with other investment funds, can they find the next Jack Ma, the next diamond in the rough?"