China to Launch First Gold Fund

Source: Reuters, Samuel Shen and Jacqueline Wong (10/11/10)

"Soaring gold prices are driving innovation in China's mutual funds industry."

Soaring gold prices are driving innovation in China's mutual funds industry, with two money managers vying to launch the country's first gold funds as early as this year to meet investor demand for the precious metal.

Lion Fund Management Co. and E Fund Management Co. have submitted applications to launch funds that invest in overseas gold-related products under the country's Qualified Domestic Institutional Investor (QDII) scheme, the companies said.

"The products would for the first time give Chinese fund investors full exposure to a new asset class and explore investment opportunities in gold," said Zhang Haochuan, analyst at Shanghai-based fund consultancy Z-Ben Advisors.

"Going forward, there could be further product innovations, such as energy funds and overseas ETFs, which would help Chinese investors better allocate their financial assets."

Plans for the China gold funds come as world gold prices hit record highs amid expectations that a new round of monetary easing in the U.S. would fuel inflation and weaken the dollar.

Chinese individual investors, who cannot invest abroad due to government regulations, are rushing to buy gold coins, bullion and bars, media reports said.

The Lion Global Gold Securities Investment Fund will closely track world gold prices, and is expected to get regulatory approval this year, Lion Fund Management Co., based in China's southern city of Shenzhen, said in a statement.

E Fund Management Co.'s new product would invest in overseas gold funds, including exchange-traded funds (ETFs), as well as mining stocks.

The two planned funds are both under the QDII scheme, which is designed to channel Chinese money into overseas capital markets.

"Giving domestic fund investors direct access to overseas gold markets would help them avoid unsystematic risks associated with Chinese gold stocks," said Zhang of Z-Ben.

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