The first commodity-based exchange-traded fund (ETF) in Asia will be listed in Singapore this week, which may make it easier for investors to diversify their holdings in the future.

On Wednesday, State Street Global Advisors (SSgA) and the World Gold Council plan to list streetTracks Gold Shares (Gold Shares), the US$7.3-billion gold ETF that has been listed on the New York Stock Exchange since November 2004, on the Singapore Stock Exchange (SGX).

Initially, Gold Shares will raise about US$30 million, mostly from institutional investors, the bullion community and private banks across Asia, including some in Thailand. It will track the price of gold bullion in London after expenses. Each share, which represents an interest in a trust, is worth approximately 0.1 ounce of gold bullion.

James Ross, senior managing director of State Street Global Advisors (SSgA), said the ETF market had gradually developed in recent years, and the outlook for the future was bright. The secondary listing of streetTracks Gold Shares on the SGX would provide Asian investors with a different way to participate in the gold market and allow them to access this important asset class, he added.

James Burton, chief executive officer of the World Gold Council, said ETFs were popular investment alternatives in the United States.

"Asia has just started to enjoy wealth," he said. "You're young and you should think of investing in ETFs, which are products that are designed for 25 years or more for saving or investment purposes."

While the value of gold may fluctuate in the short term, it had consistently returned to its historic purchasing power parity over the long term, said Mr Ross. Investing in gold could be an effective tool for asset diversification and wealth preservation, he added.

SSgA and the Council created a partnership two years ago to develop a gold ETF that allows investors a simple, cost-effective and secure means to invest in gold. The gold ETF can be purchased on the SGX as simply as ordinary stocks. Citigroup will be the market maker to enhance liquidity, while HSBC Bank USA is the custodian.

Investing in gold ETFs, said Mr Ross, would only have a 0.4% fee as an annual expense, which was lower than buying gold bars since customers had to pay more to store them in the bank.
Mr Burton said he was convinced that the trend of gold prices was positive in the long term, given constraints in supply and rising demand, while prices in the short- to mid-term would be volatile on the back of globally sensitive issues.

Demand for gold has outpaced global mine production by about 1,200 to 1,400 tonnes per year in the past five years, while gold production levels are unlikely to increase significantly.
Furthermore, central bank sales of gold will continue to be well co-ordinated, based on the Central Bank Gold Agreement of 1999, which aimed to increase transparency and limit shocks to the system.

"After the listing of Gold Shares in Singapore, we are looking forward to launching gold ETFs in other countries in Asia, such as India where demand is quite strong," he said. "It's too early to mention more country names, but we will explore opportunities, look at regulatory schemes and work with local regulators."

Asked whether SSgA might introduce ETF products in Thailand, Mr Ross said he was sure that his staff had talked with the SET about the possibility.
The SET plans to launch an equity ETF next year, and is now in the process of designing the product, establishing a reference index and selecting market makers.