China Asset Management (Hong Kong) and Qatar’s Lesha Bank agreed on Wednesday to launch Qatar’s first sharia-compliant China equity fund, highlighting growing efforts by Chinese financial institutions to lure Middle East capital as institutional investors and wealthy families seek safe havens amid geopolitical turmoil.

Among the key selling points of the mainland China and Hong Kong stock markets for Middle East investors are the mainland’s rising artificial intelligence capabilities and biotech strength, which provide needed diversification from the “crowded” US market, according to top executives of the firms.

Domiciled in the Cayman Islands, the fund – potentially as large as US$1 billion – would be structured to provide qualified high-net-worth investors in the Gulf Cooperation Council (GCC) countries direct exposure to mainland-listed shares and Hong Kong equities, the companies said. The GCC comprises Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.

The tie-up built on recent diplomatic and economic outreach, including Financial Secretary Paul Chan Mo-po’s official visit to the Middle East last month, which helped cement the city’s role as a vital financial connector between mainland China and Gulf capital markets, according to ChinaAMC.

With initial seeding of US$50 million, the fund could increase to as much as US$1 billion within the next two years, according to Mohammed Ismail Al Emadi, the bank’s group CEO.

“Through the fund, we hope to give investors in Qatar and wider region a way to invest in China’s ‘new quality productive forces’, meaning the innovative, high-growth companies driving the transformation and upgrading of China’s economy,” said Tian Gan, Hong Kong CEO of the Hong Kong-based asset manager, known as ChinaAMC.

Chinese President Xi Jinping first used the phrase “new quality productive forces” in 2023, calling for a new economic model based on innovation in advanced sectors.

While the vast majority of Lesha Bank’s client assets remained concentrated in Western markets like the US and Europe, there was compelling diversification potential in Asia, according to Al Emadi.

“Today the Asian market is large, and the main driver of that market is from China,” he said. “This is the main reason, and to diversify for our clients.”The fund would track the FTSE Shariah China Index as its core benchmark, selecting equities that adhered strictly to Islamic law while targeting high-conviction growth themes, according to Jubin Jose, a portfolio manager at Lesha Bank. These included AI, advanced manufacturing, technology localisation and high-dividend assets, he added.

Elaborating on the macroeconomic thesis, Gan said structural advantages in Chinese equities relative to crowded Western benchmarks.

“Because the US market today performs very well, it’s a very crowded market,” he said. “If you want to diversify from US assets, which market are you going to put your money in? The hottest topic is AI … and after the US, China is very dominant.”Looking ahead, the partners planned to expand their product pipeline, with cross-border exchange-traded funds next in line, he added.

Raymond Jing, director and equity portfolio manager at ChinaAMC, said that fundamental industry shifts were uncovering deep value in Chinese firms.

“Besides AI, biotech is also a fast-growing sector in China,” he said, adding that Middle Eastern investors were particularly drawn to Chinese biotech pipelines as Western pharmaceutical giants faced a looming patent cliff.