Singapore Exchange (SGX) is offering dual currency trading for seven ETFs, which includes three equity index ETFs and four fixed income ETFs.
This allows investors to trade US dollar denominated ETFs in Singapore dollars. The seven ETFs are not new ETFs per se, rather they are the same ETFs, with a counter priced in SGD in addition to a counter priced in USD.
For instance, the iShares Barclays Capital Asia Local Currency Bond Index ETF could be simultaneously represented by a counter with a bid and offer price of 9.79/9.87 in USD in addition to counter with a bid/offer price of 12.59/12.64 in SGD.
Local investors who wish to simplify the manner in which they access risk and return of offshore indices will benefit from the denomination of these indices in SGD.
If an investor wishes to construct a portfolio that is denominated in SGD rather than USD they can select from the pre-existing SGD denominated ETFs as well as use the SGD denominated ETFs tabled above. Likewise, investors looking for Asian local currency bond exposure can use iShares Barclays Capital Asia Local Currency Bond Index ETF as a core holding.
Investors that adopt the core satellite approach can now use either a Singapore Index, ASEAN Index, India Index or Fixed Income, denominated in SGD as the core portfolio investment. As before, the investor can select from a number of relevant SGD denominated satellite investments that are relevant to the core investment albeit with an alternative degree of risk/return. The flexibility of dual currency ETFs ultimately make this core/satellite style of investing more efficient with the core and satellite investments denominated in the same currency.
For instance, an investor that wishes to construct an ASEAN equity portfolio could use the SGD counter of the CIMB FTSE ASEAN 40 ETF as the core investment and select satellite plays from a wide range of stocks listed on SGX that conduct operations in ASEAN. This keeps the core and satellite segments of the investment denominated in a currency of ASEAN, the SGD.
Cash equalisation is an investment process that sees an investor seek the exposure of an ETF that is relevant to their longer term investing intentions. If the investor wishes to research then buy or sell ASEAN stocks listed on SGX, they may wish to initiate some portfolio exposure to the ASEAN marketplace from the outset through utilising the CIMB FTSE ASEAN 40 ETF. With the ETF denominated in SGD, investors do not have to initiate a foreign exchange transaction with their broker to facilitate the settlement in SGD.
Investors that have long term exposure to the stocks represented by these indices or the relevant fixed income markets are able to assess the Singapore dollar equivalent of their position in real time. Moreover, the dual currency ETFs are be fungible, i.e. an investor can buy and/or sell the ETF in US or Singapore dollars regardless of the currency in which it was first bought and/or sold.
In most cases, the traded prices in the two ETF counters should theoretically be equivalent or close to each other, taking into consideration the prevailing foreign exchange rate. However, in certain cases, due to other market supply and demand factors in the respective counters, the price relationship and difference between the two counters of the ETF might not necessarily be the foreign exchange rate between both counters.
All the seven ETFs offering dual currency as of today are cash based full replication ETFs.
Corporate actions such as dividend distribution will always be given in the primary currency of the listed security. Thus, the dividend distributions of those ETFs that have a history of paying dividends will be denominated in USD.
The introduction of this dual currency functionality provides more cost efficiency to investors as they are able to trade securities that are listed in a foreign currency in their local currency and also to trade the listed security in both currencies without having to have separate unit holdings at CDP.