Martin Lee @ Sg
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DB x-Trackers

Deutsche Bank has just launched some exchange traded funds (ETFs) on SGX. They are:

  1. FTSE/XINHUA CHINA 25 ETF 
  2. MSCI TAIWAN TRN INDEX ETF 
  3. S&P 500 SHORT ETF 
  4. S&P CNX NIFTY ETF (INDIA)

The names should give a clear indication of the region the ETF is invested it.  

The only one that needs a bit more elaboration is the S&P 500 short etf which is a form of inverse ETF. This ETF has a negative correlation to the S&P 500. It goes up when S&P goes down and vice versa.

All the ETFs are priced in USD. However, this does not mean you are exposed to the currency risk of the USD. A simple example will illustrate why.

Let’s say you own an apple valued at S$1.50. 

The apple is traded on the SGX priced in USD.

Assume the value of the apple (in S$ terms) stays constant.

If the S$ to USD exchange rate is 1.50 to 1 today, the price of the apple will be quoted at US$1. If you sell your apple, it will get you S$1.50 after currency conversion.

Now, if the USD$ collapses to 1:1 with S$, your pricing of the apple will become US$1.50 even though the value of the apple has remained constant at S$1.50. If you sell the apple and change the currency back to S$, you will end up with S$1.50.

Conversely, if the US$ strengthens to S$3 is to US$1, then the pricing of the apple will become US$0.50. If you sell the apple and convert the proceeds back to S$, you will still end up with S$1.50.

So technically, changes in the exchange rate should not affect the vaule of your apple.

Pricing assets in USD doesn’t automatically make it a USD based asset. It’s the underlying that matters.

For example, in the case of the Taiwan ETF, the Taiwan dollar to SGD exchange rate would have an effect on your returns.

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1 comment
DBXT FTSE VIETNAM ETF says 10 years ago

[…] Bank has recently launched another ETF in Singapore. This is in addition to the four they launched […]

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