China’s asset managers, who have been approved to raise $70 billion for allocation overseas, are seeking additional funds to invest in gold and precious metals as soaring inflation spurs interest in alternative assets as a way to protect wealth.
Five companies have been approved this year to raise cash for investment in precious metals products overseas via the qualified domestic institutional investors program, said Hu Miao, an analyst at Shanghai-based fund research firm Z-ben Advisors Ltd. Twenty more applications for resources and commodity investment are pending, said Hu.
Gold climbed to a record in May as rising inflation and concern about the global economic recovery spurred demand for an alternative asset. China became the largest physical gold investment market in the first quarter, according to the World Gold Council. Lion Fund Management Co. was the first to place money in foreign gold exchange-traded funds, raising more than 3.2 billion yuan ($495 million).
“There’s a discernible surge in new QDII products that are linked to gold and precious metals this year. It’s a hot theme,” Hu said by phone from Shanghai. Investors favor gold after its rally and as other investments including equities haven’t performed as well, Hu said.
The QDII program, which allows purchases of overseas financial assets from within China, had approved $68.4 billion in investments by the end of last year, according to the State Administration of Foreign Exchange. The total amount now is about $70 billion, said Z-ben’s Hu.
Gold demand in China, the world’s largest producer, is expected to continue rising as economic growth boosts wealth and inflation rising at the fastest pace in almost three years drives demand for alternative assets. Investment demand more than doubled in the first quarter to 90.9 metric tons as the nation overtook India to become the largest market for coins and bars, the World Gold Council said in May.
Exchange-traded funds, which trade like shares, enable investors to buy commodities such as metals without taking physical delivery. China doesn’t have gold ETFs and investors usually choose to buy physical gold or contracts traded on the Shanghai Gold Exchange and the Shanghai Futures Exchange.
Consumer prices in China advanced 5.5 percent in May, the most since July 2008 and exceeding the government’s target of 4 percent every month this year. The People’s Bank of China yesterday said it would raise interest rates for the third time this year to curb inflation.
“When Lion Fund introduced the first gold product, it received a lot of attention as investors were looking for ways to hedge against inflation,” said Lu Huitian, an analyst at Howbuy.com, an independent fund research firm that specializes in advising investors. “Another reason is the normal spectrum of fund products only offer exposure to equities and bonds.”
Other companies have been quick to follow. Harvest Fund Management Co., backed by Deutsche Bank AG, has received approval to raise money for a gold-themed fund, Yang Yang, manager at Harvest said by phone from Beijing. The fund will start raising money this month, Yang said, without disclosing the target amount.
China Universal Asset Management Co., whose investors include China Eastern Airlines Corp., was cleared to start a fund that will invest in ETFs backed by gold, silver, platinum and palladium, according to Liu Min, a spokeswoman in Shanghai.
Efund Management Co. raised more than 2.6 billion yuan for its gold fund in May, with investments in overseas ETFs or gold equities funds, said Zhang Xiaogang, manager at the fund. Bosera Asset Management Co. raised $300 million for its inflation- themed fund by the end of April, with about 20 percent of the portfolio marked for precious metals, Zhang Qiang, Shenzhen- based fund manager, said by phone in May.
Still, of the additional 20 companies seeking to invest in overseas resources and commodities “not all of them will see the light of day because they are too similar,” Hu said. “Investors may choose existing products with track records instead of new ‘me-too’ products, so not all of them will get approval or successfully raise money.”
Bullion jumped to a record $1,577.57 an ounce on May 2 as investors sought a store of value amid rising inflation and concerns about currency debasement. Gold was little changed at $1,530 an ounce at 11:26 a.m. in Shanghai.