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Asia gold ETFs buck trend and attract strong inflows

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Gold exchange traded funds have continued to attract strong inflows in Asia this year, as many investors hedge against concerns of widespread inflation and protect against uncertainties around the trajectory of the pandemic and economic recovery.

As of end-June, Asia-domiciled gold ETFs had posted net inflows of $1.6bn, making it the only region to register net inflows. China, India and Hong Kong-domiciled gold ETFs have been the main driver of the inflows.

In contrast, there were signifcant outflows from the funds in the US and in Europe, with total net outflows reaching $8.5bn and $3.6bn respectively over the same period, according to Morningstar data.

China accounted for the highest proportion of the flood of money into Asian gold ETFs, with 10 funds raking in more than $651m during the first half of 2021. The best-selling Chinese ETF, HuaAn Fund Management’s Huaan Gold ETF Fund, which has $1.7bn in assets under management, contributed inflows of $304m.

This article was previously published by Ignites Asia, a title owned by the FT Group.

Investors in Hong Kong and India also poured money into gold ETFs. While 11 funds domiciled in India had net inflows of $371m, four gold ETFs in Hong Kong had net inflows of $270m.

The strong inflows come after a similarly strong performance last year when Asia-domiciled gold ETFs posted inflows of $3.4bn of which India contributed $898m, China $860m and Japan $434m.

Fears of a return to high inflation have risen recently as countries open their economies after the pandemic and spending resumes. According to the International Monetary Fund, the global inflation rate rose to 3.5 per cent in 2021 from 3.2 per cent in 2020.

Robin Tsui, Hong Kong based Asia-Pacific gold strategist for State Street SPDR ETFs, said the continued inflows into Asia-listed gold ETFs in 2020 were being driven by multiple factors.

These include loosening monetary policy globally, the weakness of the US dollar, uncertainty around Covid-19 and the decline in real yields, all of which had benefited gold prices and pushed up demand for gold ETFs.

The price of gold rose 28 per cent in the first half of 2020, before dipping from its August peak. The price started to go up again in February this year. It stood at $1,815 per ounce on July 6 from $1,522 per ounce at the start of 2021.

Leena Dagade, Singapore-based associate director at Cerulli, said that investors had also been attracted to gold ETFs because of their “safe haven appeal” during the market volatility last year.

She said investors “still continue to allocate some portion of their assets to gold for its role in uncertain times and as a portfolio diversification tool”.

Tsui said prospects for Asian gold ETFs still looked “bright”.

He said Asian investor assets continued to grow and there was more interest among both intermediaries and institutional investors in understanding gold investments as part of a strategic asset allocation approach.

“The investment appeal of gold for Asian investors remains strong relative to other regions,” he said.

Central banks around the world are anticipating an increase in gold reserves over the next 12 months, with most citing “uncertainty over economic recovery from the Covid-19 pandemic” as their reason for buying gold, according to a survey prepared by the World Gold Council.

Ignites Asia is a news service published by FT Specialist for professionals working in the asset management industry. It covers everything from new product launches to regulations and industry trends. Trials and subscriptions are available at ignitesasia.com

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