Safe-haven demand and diversification are driving forces: Middle Eastern funds are turning their attention to the Hong Kong market

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◎Reporter Wang Peng and Ma Jiayue

Currently, influenced by geopolitical tensions, Middle Eastern capital is accelerating its reallocation landscape, with Hong Kong quietly becoming an important destination for this capital migration.

Shanghai Securities News interviewed multiple institutions and learned that whether it’s Middle Eastern clients frequently inquiring about Hong Kong stocks or some family offices considering shifting their focus to Hong Kong, both reflect a risk-avoidance demand and diversification logic driving Middle Eastern capital to “look east.” Moreover, China’s long-term asset competitiveness, especially in the tech sector, is becoming a key factor attracting their investment.

According to industry insiders, under the backdrop of weakening US dollar credit and rapid development of emerging industries in China, Chinese assets are becoming an important option for Middle Eastern capital reallocation.

Middle Eastern Capital Turns Its Gaze to Hong Kong Market

Some institutions revealed that recently, inquiries from Middle Eastern clients have surged, covering Hong Kong stocks, bonds, insurance, and family office setup, with detailed queries reflecting urgent capital allocation needs. Some insiders also said that certain Middle Eastern family offices, which previously shifted their focus to Singapore or Dubai, are now reassessing their global layout and considering “repatriating” some assets to Hong Kong.

“Before the outbreak of geopolitical conflicts, Middle Eastern clients’ interest in the Chinese market was already warming up. At that time, several clients planned to visit China for business trips in April or May this year to meet local managers face-to-face. Although recent travel has been somewhat affected, they still maintain a high level of interest in the Chinese market,” said a private equity firm in Beijing.

A private equity firm in Shanghai with a billion-level assets stated that the company recently obtained a Hong Kong license (License No. 9) and is in close contact with Middle Eastern capital, “They are currently very interested in Chinese assets.”

Christopher Hamilton, Client Director of Invesco Asia-Pacific Investment Solutions (excluding Japan), observed that Middle Eastern investors’ interest in the Hong Kong market has indeed increased, but it is still in the initial exploration stage, mainly focusing on understanding market valuation, structure, and risk landscape.

“Geopolitical changes in the Middle East have clearly altered the global risk assessment framework for capital, and this change is directly reflected in capital flows. Market risk aversion has increased, prompting investors to reassess their asset concentration and risk exposure in the Middle East,” said Lu Xiaoyang, Chief Chinese Market Analyst at FXTM.

Dual Drivers: Risk Aversion and Diversification Logic

Many institutions believe that Middle Eastern capital inflows into Hong Kong may become a long-term trend, with the pace expected to accelerate in the coming period.

Cheng Yu, General Manager of Research at Allianz Funds and Fund Manager, stated that currently, Middle Eastern investors have an urgent need for diversification, and two main factors could further accelerate this process—especially their allocation to Chinese assets: first, to diversify risk from US dollar assets, as their assets have historically been highly concentrated in USD, and with the long-term weakening of US dollar credit, they need to seek non-USD assets, with RMB assets being one of the best options; second, to diversify industry risk, as global technology accelerates iteration and the Fourth Industrial Revolution sweeps through, Middle Eastern funds need to expand their exposure to emerging and future industries, with Chinese tech assets being a key part of this layout.

“Besides diversification, Middle Eastern investors are also very optimistic about China’s long-term competitiveness, especially in the tech sector. Many Chinese products, including tech gadgets, hold a certain market share in the Middle East. Middle Eastern investors have a direct sense of China’s technological strength, so they have a high recognition of China’s long-term competitiveness,” Cheng Yu said.

Fountainhead Capital believes that geopolitical tensions have caused Middle Eastern investors to worry about the safety of USD assets in extreme situations. Hong Kong, with its sound legal system, financial infrastructure, and its distance from conflict zones, has become a “safe haven” for Middle Eastern funds seeking security.

“Moreover, Middle Eastern countries are pushing for economic transformation, aiming to reduce dependence on oil. In this process, Hong Kong, as a hub connecting China and global markets, is an important market for Middle Eastern capital to deploy AI, new energy, biotech, and other emerging technologies,” Fountainhead Capital said.

Long-term Attraction of Hong Kong Stocks

Recently, due to overseas uncertainties, the Hong Kong stock market has experienced continuous adjustments. In this context, how attractive are Hong Kong stocks to international capital, including Middle Eastern funds?

“Currently, Hong Kong stocks indeed have obvious medium- to long-term investment value, but investors may need to wait for an opportunity to significantly increase their allocations,” Cheng Yu said.

First, on the “micro” side, the emergence of a profit growth inflection point for companies. The Hong Kong market is fundamentally driven, with a “no rabbit, no hawk” approach—meaning, it only acts when there’s a clear profit growth “rabbit.” By 2026, the most representative internet sector in Hong Kong is expected to see a profit inflection point as the competitive landscape stabilizes, directly boosting overall corporate profit growth and market confidence.

Second, on the “macro” side, the recovery of pessimistic expectations regarding Federal Reserve monetary policy and US bond yields. If geopolitical tensions in the Middle East ease in the second half of the year, then with falling US bond yields and a recovery in risk appetite, Hong Kong stocks could see a notable valuation recovery.

Fountainhead Capital noted that external liquidity and internal fundamentals remain the two main dimensions to observe Hong Kong stock trends. Externally, as an offshore market, Hong Kong is significantly affected by US dollar liquidity. If oil prices fall and inflation expectations improve, leading to a Fed rate cut and a weaker dollar, liquidity and risk appetite for Hong Kong stocks will improve. Internally, besides macroeconomic stabilization, structural industry trends, changes in economic activity, and corporate earnings during earnings season will be key market focuses.

Lu Xiaoyang believes that if Middle Eastern funds continue to flow into Hong Kong stocks, three sectors are likely to benefit:

1. High-dividend blue chips and stable cash flow sectors. Historically, Middle Eastern capital prefers stability, especially amid increased oil price volatility, favoring defensive, high-dividend, high-visibility profit companies. Banks, telecommunications, and utilities in Hong Kong are characterized by high dividends and stable cash flows, serving as “safe harbors” during market fluctuations.

2. Energy and cyclical sectors. Middle Eastern investors are very familiar with the energy industry chain, and the frequent large fluctuations in global oil prices due to Middle Eastern tensions make energy-related listed companies more attractive. These companies have clear business models and are sensitive to global supply and demand changes.

3. Technology and new economy sectors. The valuation of Hong Kong tech stocks is lower compared to US tech stocks, with many innovative companies in rapid growth phases. Middle Eastern sovereign funds’ participation in Hong Kong tech IPOs has increased significantly, and more tech companies are expected to list in Hong Kong, offering long-term growth opportunities and making technology and advanced manufacturing key focus areas.