Asia-Middle East Investment Dynamic Poised to Reshape Global Capital Flows, Says HSBC

A recent report by HSBC highlights that cross-border investment between Asia (excluding Japan) and the Middle East and Africa (MEA) regions are at the forefront of changing global capital flows.

The financial dynamics between Asia and Middle East are undergoing a significant transformation, potentially reshaping global capital flows. A recent report by HSBC highlights that Asia and the Middle East and Africa (MEA) are at the forefront of this change, driven by robust capital spending in the Gulf Cooperation Council (GCC) region and a surge in domestic investments, financial market evolution, and active private markets. The increasing alignment of these two regions is expected to have lasting implications on global investment patterns.

HSBC forecasts that financial assets in Asia, excluding Japan, will grow at an annual rate of 8 percent between 2023 and 2028, with the MEA region expected to see even stronger growth at 9 percent. This growth far outpaces the global average of 6 percent, emphasizing the rising economic significance of these regions. The GCC’s capital expenditure plans alone are estimated at over US$3 trillion, with infrastructure finance playing a pivotal role in attracting foreign direct investment (FDI) and international investors.

Julian Wentzel, HSBC’s Head of Global Banking for MENAT, commented on the impact of the Middle East’s infrastructure reinvestment. “The capital reinvestment in the Middle East’s infrastructure projects presents significant opportunities, and approximately half of it is already committed,” he said. These projects are drawing Asian companies to the region, especially in the engineering, procurement, and construction (EPC) sectors. Meanwhile, the Middle East’s sovereign wealth funds (SWFs) are looking eastward, continuing to invest in Asia to access advanced technologies and support economic diversification efforts at home.

One of the notable projects is Saudi Arabia’s ambitious plan to build a major logistics hub in collaboration with China. The KSA-Sino Logistics Special Economic Zone, located at the King Salman International Airport, is poised to become a magnet for more than 3,000 wholesalers, retailers, and over 200 manufacturers from China and Asia.

As the two regions deepen their financial ties, the scale and liquidity of local capital markets are expected to grow. In particular, Saudi Arabia’s introduction of exchange-traded funds (ETFs) tracking Hong Kong-listed Chinese stocks is set to become the largest of its kind in the Middle East. The Albilad CSOP MSCI Hong Kong China Equity ETF, which invests in 30 stocks listed in Hong Kong, reflects the growing interconnectedness of the Asian and Middle Eastern markets.

While Asia and the Middle East currently represent only a small portion of global equity and bond indices, their influence is growing. Together, Saudi Arabia, Qatar, and the UAE account for 0.64 percent of the MSCI ACWI Investable Markets Index, while Asia—led by mainland China, Hong Kong, Singapore, and India—commands a share of 5.16 percent. This surge is mirrored in the GCC fixed income market, where bond and sukuk issuances have risen 38 percent, reaching US$75.5 billion in the first half of the year.

Wentzel emphasized that although capital flows between the regions are still in the early stages, the growing trade links and shifts in global supply chains suggest that investment will naturally follow. However, he also pointed out that to truly test the depth of these capital flows, more sophisticated and larger-scale listings will be necessary, requiring harmonization of market standards, particularly in areas like disclosure and listing rules.

The growth of domestic asset management industries in both regions is another key trend driving the capital flows. Despite Asia and the Middle East having relatively underdeveloped asset management sectors—only six of the world’s 50 largest asset managers are from Asia, and none from the Middle East—local wealth pools are expanding rapidly. This has attracted global asset managers, including the world’s largest, BlackRock, which has launched an investment platform in Saudi Arabia with a US$5 billion anchor investment from the Kingdom’s SWF—the Public Investment Fund (PIF).

Further solidifying this momentum, Saudi Arabia’s PIF has also committed to anchor Brookfield Asset Management’s new US$2 billion private equity fund, marking a significant move that will allow Brookfield to expand its reach across the Middle East.

As both regions advance toward more liquid and open capital markets, their growing importance in global financial systems is undeniable. The potential for cross-border investments, particularly in infrastructure and private markets, could redefine capital flows on a global scale.

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