Standard Bank jumps the gun on gold ETF

Standard Bank was forced to backtrack this week after announcing the imminent launch of Hong Kong’s second gold ETF before the product had received regulatory approval.

The South African lender released a statement stating that it would be the metal provider, market-maker and participating dealer for the Value Gold ETF, an exchange traded fund “to be launched in Hong Kong in early October”.

Rather embarrassingly, several hours later, the bank produced a fresh release noting that the product was expected to launch in November “subject to final approval by HK regulators”.

The ETF is due to be managed by Sensible Asset Management, a joint-venture between fund of funds manager Value Partners and the Chinese insurer Ping An.

But Teresa Yu, senior corporate communications manager of Value Partners, says the firm wasn’t aware that Standard Bank was planning to release information about the product, noting it was “premature” to discuss the ETF before it had been approved.

Standard Bank itself was forced to back track, and subsequently declined to answer any questions about a product it had been seeking to promote.

“They are not announcing that this new product will launch,” Kate Cheung, of representative PR agency Financial Dynamics, says. “They are just saying they are the market-maker for this new product; this potential new product.”

Albert Cheng, Asia managing director at the World Gold Council, says this is not standard procedure for putting together a press release. “You expect reporters will come and ask questions and you’ll talk about it,” he says.

Hong Kong’s regulator, the Securities and Futures Commission, declined to comment on the specific case of the Value Gold ETF and whether it had been approved in principle.

But observers were surprised that Standard Bank had been so forward. “I thought with this kind of thing you need SFC approval before you put out a release,” Cheng adds.

According to asset managers, the SFC has been holding up approvals of synthetic ETFs in Hong Kong, which can have greater counterparty risk, but has been approving ETFs based on underlying shares.

The Value Gold ETF, if approved, will hold physical gold, with the bars held at Hong Kong’s precious metals depository. So there’s no indication that its approval will be held up on that front. Sensible Asset Management’s first such product – the Value China ETF – successfully listed in December 2009.

The Value Gold ETF would be the second gold ETF listed in Hong Kong, but the first to hold gold physically in Asia. Its backers hope that will prove a selling point. Since it holds gold in Hong Kong, the ETF will be priced using the local price for gold. That makes it different from the existing gold ETF listed in Hong Kong, the SPDR Gold Trust, which holds gold in London.

The London price of gold is the true spot price and the universal standard, notes Cheng. Prices quoted elsewhere price in delivery to London, meaning local prices in Hong Kong can trade at a slight premium or discount to the London price, depending on how much gold there is in Hong Kong.

“Under normal conditions, if there’s no gold in Hong Kong, you need to pay price of delivery to London,” Cheng says. “But if there’s excess liquidity, the gold could be sold at a discount.”

The World Gold Council, through the World Gold Trust, is the sponsor of the SPRD Gold Trust, which was first launched in the US. So in theory it has a competing investment product. But it also works to promote gold and the use of gold as an investment.

Cheng says he fielded queries from the developers of the Value Gold ETF, and says it is one of many gold ETFs that asset managers are considering launching in the region. “I know there are a lot of parties contemplating putting together something like this,” he says.

With gold regularly setting new price highs, and ETFs offering an easy way to hold the commodity without the hassle of storing physical gold, there could be decent demand for another gold ETF in Greater China.

The Chinese are the world’s second-biggest buyers of gold, snapping up 457 tonnes of it last year, 352 of them for jewellery and 105 for investment. That ranks behind only buyers in India, who bought 578 tonnes, 136 for investment and the rest for jewellery.