Hong Kong asset manager Premia Partners is charting an ambitious course to deepen its footprint in Shariah finance with product offerings in the GCC and OIC after the rollout of an inaugural investment-grade Saudi government Sukuk ETF.
The pivot for Premia comes amid an escalation in diplomatic and infrastructure ties between Hong Kong and the two Islamic regions, Managing Partner Rebecca Chua shared with IFN Investor.
“We have been closely following this development and would be open to offering solutions in the region, most likely in local partnerships,” Rebecca said.
Driving Premia’s strategy are MoUs on debt capital market connectivity, financial infrastructure development and Shariah compliant financial product development signed between the Hong Kong Monetary Authority and the Central Bank of the United Arab Emirates as well as the Dubai International Financial Centre Authority.
Hong Kong’s Department of Justice has also signed pacts on dispute avoidance and resolution with Middle Eastern jurisdictions.
Premia’s goal, ultimately, was to facilitate cross-border investment and debt securities issuance that promote Hong Kong as a gateway between the Middle East and Asia. The firm is working on a few strategies in the pipeline and will continue to bring more Shariah compliant ETFs to market according to client needs.
Asia’s Shariah compliant fixed income market is experiencing renewed attention amid increasing global uncertainty and a growing mandate for ethical investing. Despite rising global Sukuk issuances, a critical impediment has been limited access for many Asian investors, often due to liquidity concentration and intricate operational requirements.
Add to that global uncertainties, interest rate swings and geopolitical tensions, this could cause many investors in Asia to rethink their portfolios. The long-standing focus on US Treasuries and equities is also giving way to broader diversification, including fixed income instruments that align with Islamic principles.
Premia’s recent launch of Asia’s first investment-grade Saudi government Sukuk ETF, developed in collaboration with BOCHK Asset Management, directly addresses this by providing streamlined access to Saudi sovereign Sukuk.
“Access to high-quality Sukuk is still not easy, especially for fixed income. This ETF is designed to solve that,” Rebecca said. “Investors don’t need to open new accounts; they can trade on the exchange or through dealers in the primary market.”
For Premia, the ETF launch was just the beginning. It has been listening to clients for years. This ETF is its first step, but it has other strategies in development. This may include corporate Sukuk, ESG-linked products and infrastructure themes tied to Belt and Road initiatives.
Global Sukuk rarely make it to Asia
While global Sukuk issuances have been rising, reaching US$930 billion at the end of 2024, access for many investors in Asia remains limited. Liquidity is concentrated in Gulf markets, and trading Sukuk often involves complex onboarding and operational processes.
Asia-Pacific is home to over 60% of the world’s population and has a natural preference for Shariah compliant investments. As incomes grow across the region, more people are saving and investing, looking for ethical options.
Premia’s ETF supports Hong Kong’s wider push to connect Asian investors with Middle Eastern markets. Since launching its first sovereign Sukuk in 2014, Hong Kong has worked to build stronger financial links with the Gulf region, including listings of Saudi equity ETFs and cross-listings within the Tadawul exchange.
Advantageous yields, cost in Saudi Sukuk
Saudi Sukuk offer investors some clear advantages. Yields are typically 70 to 110bps than comparable US Treasuries. They also have low correlations, 0.39 with US Treasuries and just 0.21 with emerging market bonds. Recent credit upgrades for Saudi Arabia by S&P and Fitch further support the case.
For investors, the appeal could be both simplicity and cost. It’s a convenient, low-cost way to gain exposure to stable income and better yields than US Treasuries. This is with reference to the ETF’s total expense ratio of just 0.35% per year. It also helps more investors include Sukuk in their portfolios without extra operational hurdles.
The timing was also crucial. Moody’s downgrade of US government debt and recent weakness in the dollar have pushed investors to look for new sources of income and lower-correlated assets. Given all the uncertainty around rates, currencies and politics, many investors are now looking for tools that offer more diversification.
ETFs like this connect Islamic markets with global investors in a very practical way. The structure makes due diligence easier and reduces cost barriers.
As the market grows and investors become more familiar with Islamic finance, demand is expected to expand. It’s natural that interest will move from government Sukuk to corporate and more thematic areas.
While building Shariah compliant products comes with added costs and challenges, Premia believes the opportunity is worth it. To the firm, this space is still underdeveloped, but that means there’s also room to grow and real potential for alpha.
