MENA ETFs – a region full of potential

MENA is an increasingly attractive destination for international asset managers to set up local operations. Saudi Arabia, Qatar, and the United Arab Emirates are among the fund industry’s top targets, as these countries are home to a deep pool of capital, held by a diverse range investors that includes everything from the world’s largest sovereign wealth funds to a growing community of retail investors with an interest in financial markets.

Although money market and mutual funds are well established in the region, exchange traded funds (ETFs) remain at a relatively early stage of development when compared to Europe and the US, where they are mainstream investment products. But there are signs that the MENA countries will play a greater role in this category of funds, which globally manage a total of USD15.5 trillion¹.

“There is enormous growth potential for ETFs in MENA, presenting opportunities for asset managers that can launch funds that are tailor made to local investor needs,” said Rocio Echague, Director, Head of Securities Services, MENA (ex-Saudi Arabia), HSBC.

The growth in ETF assets under management (AUM) in recent years gives a sense of the potential for these funds. Since the end of 2022, the number of ETFs listed on the Tadawul grew from seven to 12, with AUM growing five times to USD2 billion². There has been an similar expansion in the UAE over the same period, where the amount of ETFs has nearly doubled, while AUM has surged from USD180 million to USD847 million³.

There are several factors that are conducive to the issuance of more ETFs across MENA. The first is the region’s liquidity profile, as the region’s markets have become an important capital raising venue.

“Strong growth in capital markets in MENA and the corresponding growth in the asset management segment, especially in Saudi Arabia, creates a conducive environment for the successful launch of new ETFs,” said Madhur Bhandari, Country Head, Securities Services, HSBC Saudi Arabia.

In 2024, there were 54 IPOs in the MENA region, raising USD12.6 billion – a 17.6% increase on the previous year⁴. EY expects deal activity to remain strong in 2025, highlighting how Saudi Arabia, Qatar, and the UAE all have healthy deal pipelines in place. It also forecasts 22 funds to list on MENA exchanges over the course of the year.

The region’s markets are also attracting new investors. Last year, 458,000 individual investors started trading in Saudi Arabia, bringing the total to 6.5 million⁵. In Dubai, the number of investors more than doubled over the same period, with 138,262 new traders⁶.

The second factor that will support the MENA ETF market is the growth of the region’s asset management industry. A greater number of asset managers means a corresponding increase in the number of potential ETF issuers. Additionally, as more asset managers allocate capital within the region, they will need a broader range of assets to invest in. ETFs could benefit from this need.

There is robust policy support for asset managers across the region. In Saudi Arabia, there is a government target to grow the industry’s AUM to 40% of GDP by 2030, from 26% in 2024⁷. While in the UAE, Dubai Municipality has launched the Asset Management System – a system designed to support smart asset management that is aligned with the Dubai Economic Agenda D33.⁸

Qatar recently announced measures that directly target ETFs. In March, the local stock exchange announced the waiver of trading fees on ETF, with an aim to make these funds more attractive to both investors and brokers, which should result in greater liquidity in the market.

“By removing the trading fees, the Qatar Stock Exchange is working to create a low-cost ecosystem for different market participants,” said Shreen Abeysekera, Head of Securities Services, Qatar, HSBC. “Investors will enjoy trading costs more inline with global standards, while participating dealers will be more interested in creating and redeeming new ETFs.”

More broadly, a GCC fund passporting system is set to go live in 2025 – a move that will integrate the region’s financial markets and promote cross-border investments. An inter-related regional market will increase the attraction of the GCC as a place for international asset managers to do business.

As a leading provider of asset servicing solutions across the Middle East and North Africa, HSBC is in a strong position to partner with asset managers, supporting their growth in MENA markets by realising ETF strategies. Our award-winning team delivers client-centric solutions that includes regular one-on-one engagement with clients, ensuring that they understand the nuances of the local market.

HSBC’s custody and clearing offering provides highly automated safekeeping, settlement, and asset servicing capabilities that cover all trade and post-trade activity. This includes a scalable system that can handle large increase in volumes, as well as competitive deadlines and efficient settlement of turnaround trades.

It is worth highlighting the connectivity that characterises MENA ETFs. Last year, Saudi Arabia approved the first ETF in the region to track Hong Kong-listed equities; while in Abu Dhabi, there is an ETF investing in Shariah-compliant companies listed on the Bombay Stock Exchange.

These funds not only reflect the significance of the emerging Middle East-Asia investment corridor, but also the value of working with an asset servicing partner that combines a deep regional footprint with a far-reaching global network.

HSBC’s suite of fund administration services seamlessly combines international and local expertise. On a global level, we have a presence in 18 markets, with over USD3 trillion in assets under administration (AUA). Our presence in the ETF market is significant, as we administer 125 listed funds with a total AUA of more than USD100 billion. Fund managers benefit from our fully digitised ETF order management solution that provides real-time processing.

And in MENA, we have a robust business: our AUA in Bahrain, Qatar, and Saudi Arabia is USD12.3 billion. Combine this with active relationships with many of MENA’s largest asset managers, and it is clear that we are in a strong position to advance ETFs across the region.

“As the only international custodian bank present in all MENA markets, HSBC is ready to play a key role in the development of the region’s ETF market by conducting market advocacy and facilitating the entry of international clients into the region,” said Ms. Echague.