SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Asia’s leading multi-asset exchange

Singapore Exchange Ltd (SGX)

Singapore Exchange is Asia’s leading and trusted market infrastructure, facilitating the exchange of capital and ideas to create value for people, businesses and economies. As a multi-asset exchange operating equity, fixed income and derivatives markets to the highest regulatory standards, SGX is a vertically integrated business that provides listing, trading, clearing, settlement, depository and data services.

With about 40% of listed companies and over 80% of listed bonds originating outside of Singapore as well as established linkages across the region and in Europe, SGX is Asia’s most international and connected exchange. Offering a full suite of derivatives products across Asian equity indices, commodities and currencies, SGX is the world’s most liquid international market for the benchmark equity indices of China, India, Japan and ASEAN.

As Asia’s pioneering central counterparty, SGX is globally recognised for its risk management and clearing capabilities, and was one of the first globally to adopt the Principles for Financial Market Infrastructure.

Headquartered in AAA-rated Singapore, SGX has over 800 employees including offices in Beijing, Chicago, Hong Kong, London, New York, Mumbai, San Francisco, Shanghai and Tokyo.

Equity Bottom-Up

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The SPDR Gold Shares ETF reflects the performance of the price of Gold bullion, less the trust’s expenses of 0.4% per annum. The ETF units represent fractional, undivided interests in the trust, the primary asset of which is allocated Gold and uses the LBMA Gold Price PM as the reference benchmark price in calculating the trust NAV. 
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Effective 30 June, dual currency trading has been introduced to the SPDR Gold Shares ETF, with the ETF now traded in SGD, in addition to the USD primary currency. Phillip Securities and Flow Traders Asia have been appointed as the designated market makers for the new SGD Counter (GSD). 
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The simple inverse correlation of the FTSE ASEAN All-Share Index to the SPDR Gold Shares ETF was enhanced significantly over the past five years when denominating the FTSE ASEAN All-Share Index in USD and the SPDR Gold Shares ETF in SGD. 
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	<li>The SPDR Gold Shares ETF, and to a lesser extent, the SGD, have both appealed as less riskier assets that served investors seeking safer havens in recent years. Amid the broad market volatility in January and May this year, the SPDR Gold Shares ETF in SGD terms outpaced the ETF in USD terms. </li>
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 The SPDR Gold Shares ETF

Effective 30 June, dual currency trading will be introduced to the SPDR Gold Shares ETF which will commence trading in a secondary currency of SGD (Code: <a href="https://www.sgx.com/securities/products/GSD">GSD</a>), with the primary trading currency remaining the USD (code: <a href="https://www.sgx.com/securities/products/O87">O87</a>).  As the unit holdings executed via SGD and USD counters are custodised in a consolidated pool at the depository, investors can buy one currency counter and sell in the other currency counter.

The non-SIP ETF, also included under the CPFIS-OA/SA, has a minimum board lot size of 5 units (approx. 0.47 ounces of Gold), which at a current unit price of US$166.00, has a value of US$830 (approx. S$1,110). The SPDR Gold Shares ETF was the most traded ETF listed in Singapore in 2019 and 2020, and the second most traded ETF in the 2021 year to date.

The SPDR Gold Shares ETF has averaged daily turnover close to US$4.0 million since the end of 2019, which compares to average daily turnover of US$1.7 million for the three years pre-COVID. 

 

Recent Volatility, the SGD and the SPDR Gold Shares ETF

The past five years have seen the SPDR Gold Shares ETF generate a 32% return in USD terms, while the regional FTSE ASEAN All-Share Index generated an 8% price return, with reinvested dividends boosting the total return to 18.8% (also in USD terms). While both benchmarks generated gains over the five years, with the SPDR Gold Shares ETF return largely unchanged at 31% in SGD terms, periods of heightened volatility did see a number performance divergences across the Index, ETF and SGD/USD. So much so, that over the past five years, the daily moves of the SPDR Gold Shares ETF have been inversely correlated to the FTSE ASEAN All-Share Index. When changing the denomination of the SPDR Gold Shares ETF to the SGD, the ETF’s inverse correlation to FTSE ASEAN All-Share Index was increased further. One possible reason for this was that the SPDR Gold Shares ETF, and to a lesser extent, the SGD, have both appealed as less riskier assets that served investors seeking safer havens in recent years. 

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<li>
For instance, during the market volatility between 15 January 2020 and 15 April 2020 the FTSE ASEAN All-Share Index, which is denominated in USD, declined 26.5% while the SPDR Gold Shares ETF in USD terms gained 9.8%. The USD continues to remain the most used international currency used for international and intra-regional trade.  During the four months, the SPDR Gold Shares ETF gained 16.0% in SGD terms, outpacing the 9.8% gain for the ETF in USD terms. This meant the simple inverse correlation of the SPDR Gold Shares ETF in SGD terms to the FTSE ASEAN All-Share Index in USD terms, for the short period, was exacerbated further, in this case, from -9% to -56%. 
	 </li>
	<li>From 14 January 2021 to 1 February 2021, the FTSE ASEAN All-Share Index declined 4.6% in USD terms, while the SPDR Gold Shares ETF in USD terms gained 1.1% and the SPDR Gold Shares ETF in SGD terms gained 1.7%. More recently, the three weeks from 29 April to 20 May saw the FTSE ASEAN All-Share Index decline 3.0% in USD terms, while SPDR Gold Shares ETF in USD terms gained 5.1% and the SPDR Gold Shares ETF in SGD terms gained 5.5%. </li>
</ul>
Note these educative examples of inverse correlation were observed during increased market volatility that coincided with risk-off like themes making the headlines, with the key caveat that past cross-asset flows do not necessarily foreshadow future cross-asset flows. As a global asset class, Gold has multiple attributes with portfolio diversification a popular application. Including assets with a low correlation to each other does help reduce overall portfolio risk and the World Gold Council suggests that when investors add risky assets, Gold should make up between 2% and 10% of the portfolio.

With Singapore's open Capital Account, the International Monetary Fund noted in 2019 that due to Singapore’s status as a trade and financial center in Asia, changes in market sentiment can affect Singapore significantly, and that increased risk aversion in the region, for instance, may lead to inflows to Singapore given its status as a regional safe haven, while global stress may lead to outflow.

 

Broader Applications of the SPDR Gold Shares ETF 

Much of the ASEAN population does maintain a penchant for Gold. The SBMA maintains that Gold has played a very important role in ASEAN and is closely connected with the life and culture of the people in the region, and has been used often in the past as a medium of exchange and a unit of measurement. Back in 2017, the SBMA highlighted a regional propensity to buy Gold jewellery, not only for use as accessories or gifts for cultural or religious ceremonies such as weddings, festivals and other special occasions, but also as a storage of wealth (click <a href="https://www.sbma.org.sg/asean-bullion-market/asean/">here</a> for more). 

The SPDR Gold Shares ETF is also among the most traded ETFs across the region. The key attribute that State Street Global Advisors often associate with the ETF is its provision of a modern, cost-efficient and secure way to gain access to the Gold market without having to pay the transportation, storage and insurance costs of holding physical Gold.

Aside from Gold helping manage risk and volatility as discussed above, Gold may help preserve purchasing power. The leading ETF issuer maintains that the Gold prices are influenced by multiple factors ranging from central bank policies and interest rates to emerging market demand and mining production and as a result, there are a diverse set of global drivers that impact the price of Gold beyond localised events. State Street Global Advisors suggest that this could support Gold prices during periods of local currency depreciation and may help it act as a hedge against global inflation.

Since its inception in the United States in November 2004, the ETF has generated an annualised return of 8% in USD terms or 7% in SGD terms through to 28 June. The SPDR Gold Shares ETF was subsequently listed on SGX in October 2006, and has generated an annualised return of 8% in USD terms or 6% in SGD terms through to 28 June.  Globally, the SPDR Gold Trust currently maintains total net assets of US$64 billion.

 

Investing in ETFs ETFs are investment funds listed and traded intraday on a stock exchange. The majority aim to track the performance of an index and provide access to a wide variety of markets and asset classes, including local stocks, international securities, bonds, commodities or money markets. Each ETF gives investors access to the performance of the asset that comprises the underlying index. Investing in the ETF is also less costly if one was to build a similar portfolio by buying the individual stocks. It also provides exposure to international markets and asset classes that may be inaccessible to individual investors.

Please note that ETFs are subject to market risks, foreign exchange risks, liquidity risks and tracking error risk.  As with other securities, the underlying which ETF tracks is susceptible to market volatility. Change of market condition will affect the price of the underlying, which constitutes the NAV of the ETF, leading to a change in price of the ETF. Foreign exchange risks can also arise when the currency of the actual assets held by the ETF differs from the denomination currency of the ETF or when the trading currency of the ETF differs from the denomination currency of the ETF. Fluctuation of the foreign exchange may affect the price and the realised and unrealised profit or loss of an ETF. Active trading of the ETF may also not be maintained when the authorised participants or designated market maker cease to perform its obligations to provide continuous quote in the ETF. The result of this is that the buyer may not be able to buy or sell an ETF in a timely manner at a fair price.

ETFs which are classified as Excluded Investment Products (EIP), such as the SPDR Gold Shares, are generally for investors who expect low to moderate likelihood of loss of principal investment amount, with generally smaller potential returns. Investors who invest in this product should have a basic understanding of financial instruments with standardized terms and no unusual or complicated features. To find out more about ETFs, click <a href="https://www.sgxacademy.com/home/infographics/what-you-need-to-know-about-investing-in-etfs/?utm_source=Research&amp;utm_medium=MU&amp;utm_campaign=ETFs&amp;utm_term=%2708062020&amp;utm_content=Market%20Update">here</a>. 
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The SPDR Gold Shares ETF reflects the performance of the price of Gold bullion, less the trust’s expenses of 0.4% per annum. The ETF units represent fractional, undivided interests in the trust, the primary asset of which is allocated Gold and uses the LBMA Gold Price PM as the reference benchmark price in calculating the trust NAV. 
	 
	
Effective 30 June, dual currency trading has been introduced to the SPDR Gold Shares ETF, with the ETF now traded in SGD, in addition to the USD primary currency. Phillip Securities and Flow Traders Asia have been appointed as the designated market makers for the new SGD Counter (GSD). 
	 
	
The simple inverse correlation of the FTSE ASEAN All-Share Index to the SPDR Gold Shares ETF was enhanced significantly over the past five years when denominating the FTSE ASEAN All-Share Index in USD and the SPDR Gold Shares ETF in SGD. 
	 
	The SPDR Gold Shares ETF, and to a lesser extent, the SGD, have both appealed as less riskier assets that served investors seeking safer havens in recent years. Amid the broad market volatility in January and May this year, the SPDR Gold Shares ETF in SGD terms outpaced the ETF in USD terms. 

 

 The SPDR Gold Shares ETF

Effective 30 June, dual currency trading will be introduced to the SPDR Gold Shares ETF which will commence trading in a secondary currency of SGD (Code: GSD), with the primary trading currency remaining the USD (code: O87).  As the unit holdings executed via SGD and USD counters are custodised in a consolidated pool at the depository, investors can buy one currency counter and sell in the other currency counter.

The non-SIP ETF, also included under the CPFIS-OA/SA, has a minimum board lot size of 5 units (approx. 0.47 ounces of Gold), which at a current unit price of US$166.00, has a value of US$830 (approx. S$1,110). The SPDR Gold Shares ETF was the most traded ETF listed in Singapore in 2019 and 2020, and the second most traded ETF in the 2021 year to date.

The SPDR Gold Shares ETF has averaged daily turnover close to US$4.0 million since the end of 2019, which compares to average daily turnover of US$1.7 million for the three years pre-COVID. 

 

Recent Volatility, the SGD and the SPDR Gold Shares ETF

The past five years have seen the SPDR Gold Shares ETF generate a 32% return in USD terms, while the regional FTSE ASEAN All-Share Index generated an 8% price return, with reinvested dividends boosting the total return to 18.8% (also in USD terms). While both benchmarks generated gains over the five years, with the SPDR Gold Shares ETF return largely unchanged at 31% in SGD terms, periods of heightened volatility did see a number performance divergences across the Index, ETF and SGD/USD. So much so, that over the past five years, the daily moves of the SPDR Gold Shares ETF have been inversely correlated to the FTSE ASEAN All-Share Index. When changing the denomination of the SPDR Gold Shares ETF to the SGD, the ETF’s inverse correlation to FTSE ASEAN All-Share Index was increased further. One possible reason for this was that the SPDR Gold Shares ETF, and to a lesser extent, the SGD, have both appealed as less riskier assets that served investors seeking safer havens in recent years. 



For instance, during the market volatility between 15 January 2020 and 15 April 2020 the FTSE ASEAN All-Share Index, which is denominated in USD, declined 26.5% while the SPDR Gold Shares ETF in USD terms gained 9.8%. The USD continues to remain the most used international currency used for international and intra-regional trade.  During the four months, the SPDR Gold Shares ETF gained 16.0% in SGD terms, outpacing the 9.8% gain for the ETF in USD terms. This meant the simple inverse correlation of the SPDR Gold Shares ETF in SGD terms to the FTSE ASEAN All-Share Index in USD terms, for the short period, was exacerbated further, in this case, from -9% to -56%. 
	 
	From 14 January 2021 to 1 February 2021, the FTSE ASEAN All-Share Index declined 4.6% in USD terms, while the SPDR Gold Shares ETF in USD terms gained 1.1% and the SPDR Gold Shares ETF in SGD terms gained 1.7%. More recently, the three weeks from 29 April to 20 May saw the FTSE ASEAN All-Share Index decline 3.0% in USD terms, while SPDR Gold Shares ETF in USD terms gained 5.1% and the SPDR Gold Shares ETF in SGD terms gained 5.5%. 

Note these educative examples of inverse correlation were observed during increased market volatility that coincided with risk-off like themes making the headlines, with the key caveat that past cross-asset flows do not necessarily foreshadow future cross-asset flows. As a global asset class, Gold has multiple attributes with portfolio diversification a popular application. Including assets with a low correlation to each other does help reduce overall portfolio risk and the World Gold Council suggests that when investors add risky assets, Gold should make up between 2% and 10% of the portfolio.

With Singapore's open Capital Account, the International Monetary Fund noted in 2019 that due to Singapore’s status as a trade and financial center in Asia, changes in market sentiment can affect Singapore significantly, and that increased risk aversion in the region, for instance, may lead to inflows to Singapore given its status as a regional safe haven, while global stress may lead to outflow.

 

Broader Applications of the SPDR Gold Shares ETF 

Much of the ASEAN population does maintain a penchant for Gold. The SBMA maintains that Gold has played a very important role in ASEAN and is closely connected with the life and culture of the people in the region, and has been used often in the past as a medium of exchange and a unit of measurement. Back in 2017, the SBMA highlighted a regional propensity to buy Gold jewellery, not only for use as accessories or gifts for cultural or religious ceremonies such as weddings, festivals and other special occasions, but also as a storage of wealth (click here for more). 

The SPDR Gold Shares ETF is also among the most traded ETFs across the region. The key attribute that State Street Global Advisors often associate with the ETF is its provision of a modern, cost-efficient and secure way to gain access to the Gold market without having to pay the transportation, storage and insurance costs of holding physical Gold.

Aside from Gold helping manage risk and volatility as discussed above, Gold may help preserve purchasing power. The leading ETF issuer maintains that the Gold prices are influenced by multiple factors ranging from central bank policies and interest rates to emerging market demand and mining production and as a result, there are a diverse set of global drivers that impact the price of Gold beyond localised events. State Street Global Advisors suggest that this could support Gold prices during periods of local currency depreciation and may help it act as a hedge against global inflation.

Since its inception in the United States in November 2004, the ETF has generated an annualised return of 8% in USD terms or 7% in SGD terms through to 28 June. The SPDR Gold Shares ETF was subsequently listed on SGX in October 2006, and has generated an annualised return of 8% in USD terms or 6% in SGD terms through to 28 June.  Globally, the SPDR Gold Trust currently maintains total net assets of US$64 billion.

 

Investing in ETFs  ETFs are investment funds listed and traded intraday on a stock exchange. The majority aim to track the performance of an index and provide access to a wide variety of markets and asset classes, including local stocks, international securities, bonds, commodities or money markets. Each ETF gives investors access to the performance of the asset that comprises the underlying index. Investing in the ETF is also less costly if one was to build a similar portfolio by buying the individual stocks. It also provides exposure to international markets and asset classes that may be inaccessible to individual investors.

Please note that ETFs are subject to market risks, foreign exchange risks, liquidity risks and tracking error risk.  As with other securities, the underlying which ETF tracks is susceptible to market volatility. Change of market condition will affect the price of the underlying, which constitutes the NAV of the ETF, leading to a change in price of the ETF. Foreign exchange risks can also arise when the currency of the actual assets held by the ETF differs from the denomination currency of the ETF or when the trading currency of the ETF differs from the denomination currency of the ETF. Fluctuation of the foreign exchange may affect the price and the realised and unrealised profit or loss of an ETF. Active trading of the ETF may also not be maintained when the authorised participants or designated market maker cease to perform its obligations to provide continuous quote in the ETF. The result of this is that the buyer may not be able to buy or sell an ETF in a timely manner at a fair price.

ETFs which are classified as Excluded Investment Products (EIP), such as the SPDR Gold Shares, are generally for investors who expect low to moderate likelihood of loss of principal investment amount, with generally smaller potential returns. Investors who invest in this product should have a basic understanding of financial instruments with standardized terms and no unusual or complicated features. To find out more about ETFs, click here. 



SPDR Gold Shares ETF Now Traded in Both USD and SGD 

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High debt burdens are not just a developing world phenomenon. The growth of Quantitative Easing programs has resulted in significantly increased debt in many countries, including a good number in the European Union, whose debt levels are masked by accounting procedures.

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SPDR Gold Shares ETF Now Traded in Both USD and SGD

The SPDR Gold Shares ETF reflects the performance of the price of Gold bullion, less the trust’s expenses of 0.4% per annum. The ETF units...

Singapore Exchange Ltd (SGX)

The Potential for National Financial Default

High debt burdens are not just a developing world phenomenon. The growth of Quantitative Easing programs has resulted in significantly increased...

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