ETFs tracking foreign currencies offer options to investors: TWSE

Taipei--Investors here are expected to have more options to broaden their investment portfolios as the local main board is to have exchange-traded funds (ETFs) to track foreign currencies, according to the Taiwan Stock Exchange.   By taking advantage of the presence of the ETFs, investors are likely to make foreign exchange gains while trading ETFs on the local main board, the TWSE said.   Yuanta Securities Investment Trust Co. (????), a subsidiary of Yuanta Financial Holding Co. (????), is scheduled to list three ETFs tracking the U.S. dollar futures index later this month.   The three ETFs will track the S&P U.S. Dollar Futures Index Excess Return (ER), the S&P U.S. Dollar Futures 1x Inverse Daily Index ER, and the S&P U.S. Dollar Futures 2x Leverage Daily Index ER.   Tan Shih-ping (???), deputy head of Yuanta's futures trust division, said that ETFs tracking foreign currencies are highly liquid and trading costs are relatively low.   Tan cited statistics compiled by the Bank for International Settlement as saying that the daily turnover of the foreign exchange market hit US$5.09 trillion as of the end of 2016, making the market the largest financial segment in the global financial market.   According to the TWSE, which operates the local main board, between the end of 2011 and the end of 2016, foreign currency- denominated deposits in Taiwan rose 87 percent to top US$5 trillion, but monthly turnover in the local foreign exchange market rose only about 38 percent to US$569.4 billion, so that there is plenty of room for investors to invest their foreign currency deposits.   The TWSE said, however, that Taiwan is short of good investment tools for investors wishing to use their foreign currency-denominated assets, adding that investors can only buy or sell foreign currencies in the spot market or park their money in foreign currency deposits.   The TWSE said that after the ETFs tracking foreign currencies listings, investors will have more choices of where to park their funds in the market.   Yuanta said that unlike trading of foreign currencies in the spot market or foreign currency deposits, where pricing is set by banks, pricing of ETFs tracking foreign currencies will be decided under a market mechanism.   In addition, the difference between selling and buying prices in the U.S. dollar, Japanese yen and euro spot markets average 2.93 percent, and trading costs of foreign currency deposits hover around 0.97 percent, but trading costs of ETFs are much lower, standing at only 0.24 percent, Yuanta said.   Yuanta added that ETFs tracking foreign currencies have different trading patterns, including a leveraged one and an inverse one.   The leverage one, which tracks the S&P U.S. Dollar Futures 2x Leverage Daily Index (ER), is expected to help investors to generate double returns in a booming market, while the inverse one, which tracks the S&P U.S. Dollar Futures 1x Inverse Daily Index (ER), will help investors hedge their risks in a down market, Yuanta said.     Source: Focus Taiwan News Channel