Chinese-listed funds shrug off short-term shocks to evolve into long-term bets for investors

When retiree Zhu Wanhua heard about the opening of the annual Shanghai Book Fair last month, she headed straight there to look for books on how to trade gold exchange-traded funds.

"There is a saying that when markets fluctuate, buy gold," the 63-year-old says.

She used to buy gold, but storage and transactions are troublesome, she says. "So when I met a friend who trades in gold ETFs, I decided to learn more."

Gold EFTs are listed on the world's major exchanges and aim to track the price of gold. Chinese investors have shifted their attention to these products from physical gold.

Zhu, who tracks the gold price online and subscribes to market newsletters, says rises in the prices of gold and gold ETFs in the first half of this year set her thinking.

The impact of Britain's decision to exit the European Union on securities, currencies and commodities markets, including the gold market, is likely to be reflected in the third quarter.

In the week after the June 23 referendum, searches for "gold" on Baidu, the Chinese search engine, surged 44 percent year-on-year.

A report by the World Gold Council says the gold price in US dollar terms rose 25 percent year-on-year in the January-June period, the best first-half record since 1980.

"Gold demand in the second quarter followed the trend from the prior quarter: huge ETF inflows counterbalanced by anemic jewelry demand amid rising prices," the report says. "Investment was the largest component of gold demand for two consecutive quarters, the first time this has ever happened."

The appetite among Chinese investor for gold ETFs is reflected in the sharp rise in the first half. Combined holding of four Chinese gold ETFs rose from 6.3 metric tons at the beginning of the year to 24.4 tons at June-end, up 287 percent.

E Fund Global Tradable Open-Ended Securities and Investment Fund, one of China's four gold ETFs, saw a surging appetite for investment as its assets under management grew in the past two months from 960 million yuan to 1.9 billion yuan ($143 million to $284 million; 127 million to 253 million euros)

Lin Weibin, manager of the fund, says gold remains a haven for risk-averse investors and will continue to attract more of them amid slowing global economic growth and monetary easing.

China's holdings of gold ETFs have dipped on occasion after the release of some positive US economic data. These dips are considered part of a natural cycle based on changes to investors' short-term sentiment.

Overall, China's gold ETF market is expanding fast, as investors are getting more familiar with the investment option, says analyst Yang Fei at Seewonder Financial Information Ltd in Shanghai.

"Gold is always an option when building an investment portfolio. Short-term price fluctuations and holdings won't change gold's intrinsic merit as a long-term hedge against risk," Yang says.

Currently, gold ETFs in China are relatively small compared with other investment options, so investors have little say in their pricing, despite the country being one of the world's largest gold producers and consumers.

However, analysts expect that the increasing appetite and knowledge of investors will gradually improve the situation.

Based on the sizes of gold holdings and assets under management by the end of June, China's four gold ETFs were ranked below 50 among the more than 70 ETFs worldwide tracked by the World Gold Council. The world's major gold ETFs are in the United States, Canada, Britain, Switzerland and Germany. Combined, their gold holdings and assets under management far exceed those in China.

Xue Ke, chief analyst and deputy general manager of Tianjin Jinhengfeng Precious Metals Management Co, says precious metal ETFs in China are going to further grow and diversify, given the rising investor demand.

"China's existing gold ETFs were introduced in 2012, which means the market is still young. Undoubtedly, more options will be introduced," Xue adds.

wuyiyao@chinadaily.com.cn

(China Daily European Weekly 09/16/2016 page28)