The world’s first
renminbi-denominated physical gold exchange traded fund (ETF)
listed on the Hong Kong stock exchange (HKEx) this week.
In a bid to capitalise on the
surging appetite for both the Chinese currency and bullion, the
Hang Seng Rmb Gold ETF will,
according to its
prospectus, hedge against the
foreign exchange rate movements between Rmb and US dollar so
that its performance in Rmb tracks the performance of the
London gold fixing price in US dollar as closely as
Such currency hedging will enable investors to go
long gold and Rmb simultaneously.
Those who hold Rmb can therefore use their funds to buy gold
while also retaining their exposure to the Chinese currency,
which is widely expected to appreciate against the US
the lead partner on the deal, Simmons &
Simmons’ Hong Kong funds group head, Rolfe Hayden,
told IFLR that it took time to obtain Hong Kong’s
Securities and Futures Commission (SFC) approval of the foreign
currency exposure embedded in the fund.
one can predict whether Rmb will rise or fall against the US
dollar any more than any other currency, so it took time to get
the SFC comfortable with the unique risks associated with such
foreign currency exposure and the disclosure required as a
result of that," he said.
Listed SFC-authorised funds typically require a higher
standard of disclosure, and listed ETFs even more so as they
traditionally do not disclose any subjective analysis of
underlying investments or value of acquisitions.
"Getting the right level of disclosure to satisfy the SFC that
retail investors were to be adequately informed of the risks
associated with trading in a listed Rmb ETF, and able to engage
in secondary market activity was a challenge," said Hayden.
In tracking gold custodied outside Hong Kong, the product
plays on increasing regional demand for commodities,
commodity-linked products, and bullion. Its launch follows
HKEx’s announcement last month that it planned
to refocus on commodities as opportunities slow in the equities
market, and the window for capturing China’s
explosive commodity demand narrows.
The two other gold ETFs on the HKEx, the SPDR Gold
Shares ETF and the Value Gold ETF, which are denominated in
Hong Kong dollars, also track the performance of the London
Bullion Market Association gold fixing price. The Value Gold
ETF, the first indigenous Hong Kong physical gold ETF, stores
its bullion at Hong Kong International
Precious Metal Depositary.
As the first domestic ETF to custody gold outside Hong Kong,
the deal required more close interaction with the SFC, as the
regulator took a much closer interest in ensuring that the
custody arrangements complied with its requirements, said
The product has so far seen
disappointing take-up. This could be in part
due to volatility in the gold market, where prices fell over
16% in one month last September. Analysts are hopeful demand
will pick up as market participants become familiar with the
Hayden expected more precious metal Rmb ETFs, and possibly
also R-QFII [Rmb Qualified Foreign Institutional Investor] ETFs
would come to market this year.
Authorities and regulators are keen to develop Hong Kong as
an asset management hub and as an institutional investment
tool, favoured by hedge funds and asset managers, ETFs greatly
compliment that drive, he said.