Letters | Cryptocurrency ETFs in Hong Kong? Let’s walk before we can run

Readers discuss what products are suitable for individual investors, and the prospect of interest rate cuts

Digital currencies

Letters

Published: 11:30am, 19 Jan 2024

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I am responding to your article, “Hong Kong needs to speed up approval of spot cryptocurrency exchange-traded funds after US launch, industry insiders say” (January 14). I am reminded of the old saying, “Walk before you can run.”

Vanguard, the American fund management company, used to have a range of low-cost passive ETFs in Hong Kong investing in global markets. But they moved out some years ago.

The main reason, I believe, is that they would not pay commissions to banks and insurance companies to sell their funds. There may be other reasons. This is a problem across Asia where investment products are “sold, not bought”. In other words, distributors of financial products dominate over the producers and users of such products.

I used to invest in Vanguard’s ETFs in the Hong Kong stock market. After Vanguard moved out, I am now paying higher investment management fees on equity funds run by a Hong Kong-based company.

So, what are my issues?

Can Hong Kong Exchanges and Clearing encourage more low-cost ETFs to be listed on the Hong Kong stock exchange?

Can HKEX (or whoever) launch a programme to teach investors the benefits of such low-cost products? For example, low-cost investment diversification.

Can these products embrace global equity/bond markets? Can these plain vanilla building blocks of investment be prioritised over cryptocurrency?

Is cryptocurrency a suitable investment for Hong Kong individual investors at this time? Is it suitable for Occupational Retirement Schemes and the Mandatory Provident Fund?

The Hong Kong financial authorities should stand up to the tyranny of the banks and insurance companies who want to maximise their distribution fees. ETFs, with much lower fees compared to active managers, arguably represent the democratisation of money. Excess fees paid to distributors detract from the investment returns that would otherwise accrue to investors.

Can the financial regulators in Hong Kong (and related parties) stop pontificating about fads such as cryptocurrency and concentrate on equities, bonds, cash and unit trusts in the main public markets? These are the areas where long-term savings are accrued, as opposed to faddish investments that straddle the grey area between legality and fraud.

Retail investors, particularly, need to be protected from dubious products.

Nicholas Rogers, Mid-Levels

Don’t count your rate cuts before they hatch

While the Hang Seng Index is trading at low valuations, we could be in for more downside once equity bubbles elsewhere burst. Markets in Japan and India are trading at new highs and look inflated, even if the economies there are strong.

When the markets outpace economies, eventually investor euphoria will end and the bubbles will burst.

While it’s a great time to sell the story of rate cuts and strong economies, investors need to realise they can’t get ahead of themselves. It will take time for rate cuts to spur economies again, especially in a year of uncertainty with elections all over the world. Every mature investor knows what it feels like to get stuck with overvalued assets. What has happened in China might happen around the world in 2024. Let’s not get stuck when it does. It’s time to take profit.

Rishi Teckchandani, Mid-Levels

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