RMB-denominated paper gold scheme
What is a "renminbi-denominated paper gold scheme"?
A renminbi-denominated paper gold scheme generally refers to a paper gold scheme that adopts renminbi (known as "RMB") as its (or one of its) denominated currency. Purchase and sale of units in a renminbi-denominated paper gold scheme must be settled and paid in renminbi if investors choose to invest in the scheme, unless otherwise stated in its offering and constitutive documents.
Investors should read the offering documents and the product key facts statement (Product KFS) of a renminbi-denominated paper gold scheme carefully before investing in order to understand the key features and risks involved.
What are the key risks involved in renminbi-denominated paper gold schemes in general?
Since the unit prices of a renminbi-denominated paper gold scheme are denominated in renminbi, but its reference asset (i.e. gold) is typically priced in another currency (i.e. US Dollar), so even if the prices of reference asset / gold rise, investors may still incur losses if renminbi appreciates against the currency of the reference asset more than the increase in the prices of the reference asset / gold.
Non-renminbi based (e.g. Hong Kong) investors may have to convert local non-renminbi currency into renminbi when investing in a renminbi-denominated paper gold scheme. You may also have to convert the proceeds (received when selling the units) back to your base currency. During these processes, you will be subject to additional currency risk between renminbi and your local non-renminbi currency. You will also incur currency conversion costs.
The exchange rate of renminbi may rise or fall. There is no guarantee that renminbi will not depreciate. Investment in a renminbi-denominated paper gold scheme shall not be used to bet on the appreciation of renminbi.
Offshore renminbi market risk
While both onshore renminbi (known as "CNY") and offshore renminbi (known as "CNH") represent the same currency, they are traded in different and separate markets which operate independently. CNY and CNH do not necessarily have the same exchange rate and their movements may not be in the same direction.
The unit prices of a renminbi-denominated paper gold scheme will typically be valued with reference to the CNH exchange rate rather than the CNY exchange rate and the performance of the renminbi-denominated paper gold scheme (particularly where it has no currency hedging strategy) may not necessarily be affected in the same way or extent by the movements of CNH against US dollar as the movements of CNY against US dollar.
Market / investment risk
Investments in a renminbi-denominated paper gold scheme are not the same as a bank deposit. There is no guarantee of the repayment of principal.
Investing in a renminbi-denominated paper gold scheme is not the same as investing in actual / physical gold. Price changes in gold might not be reflected in the price changes of a renminbi-denominated paper gold scheme.
Insolvency risk of the issuer
Investments in a renminbi-denominated paper gold scheme are subject to the insolvency risk associated with its issuer. There is no assurance of protection against a default by the issuer in respect of its payment obligations. Investors may under adverse circumstances lose their entire investments in a renminbi-denominated paper gold scheme.
Is renminbi freely convertible in Hong Kong?
There is no limit on the amount of renminbi that can be purchased or sold by individuals and companies with banks in Hong Kong.
What should investors consider before investing in renminbi-denominated paper gold schemes?
As an investor, you should always understand the nature, investment objective and strategy, key features and risks of a renminbi-denominated paper gold scheme before deciding whether to invest.
When you invest in a renminbi-denominated paper gold scheme, there is a bid and offer spread charged on the buying and selling prices. You should understand how these fees and charges are calculated and deducted. You must consider and understand how they may affect your investment return.
How do I know if a renminbi-denominated paper gold scheme is suitable for me?
Before you make your investment decision, you should learn about the product features of a renminbi-denominated paper gold scheme and be clear about your investment objectives. In addition, according to the SFC's Code of Conduct, when SFC licensed persons and registered institutions solicit, or make a recommendation to, you in relation to a renminbi-denominated paper gold scheme, they must ensure its suitability for you after taking into account your personal circumstances, such as financial situation, investment experience and investment objectives.