Standard Bank Group's palladium-backed exchange traded fund (ETF), known as AfricaPalladium, has been listed on the Namibian Stock Exchange (NSX).
AfricaPalladium has attracted 560,000oz of palladium valued in excess of R5-billion from investors since its inception on 24 March 2014 on the Johannesburg Stock Exchange (JSE). AfricaPalladium is the second largest palladium ETF globally.
"The AfricaPalladium ETF listed on the NSX will invest directly in palladium metal and tracks the Namibia Dollar price of the metal," says Mr Johann Erasmus, Head of Global Structuring at Standard Bank Group. "The AfricaPalladium ETF will allow Namibian investors to gain direct exposure to physical palladium via a liquid listed instrument in a simple and cost-efficient way, without any of the usual costs and risks of ownership."
Palladium is one of the platinum group of metals and is produced with other group metals most notably platinum and rhodium. South Africa is the largest producer of platinum, about 60% and the second-largest producer of palladium, about 40% of global production.
Where platinum is mostly used for catalytic converters in diesel engines, palladium is used in catalytic converters for petrol vehicles with the biggest users for those vehicles being the USA and China as the two principal vehicle markets in the world.
"The long-term fundamentals for palladium are promising, as the demand for palladium has outstripped production over the last few years and this trend seems set to continue for the foreseeable future." says Mr Erasmus.
Standard Bank Group estimates that 530,000oz of palladium production has been lost due to mining strikes in South Africa and predicts the global market for the metal will remain in deficit until at least 2016.
That's likely to see the palladium price average USD788/oz this year before climbing to USD875/oz in 2015, USD900oz in 2016 and USD950/oz in 2017, according to Standard Bank Group's estimates. Other factors that are likely to keep the palladium market in deficit include ongoing uncertainty about supplies from Russia, the world's largest palladium producer, as well as increasing demand from United States and China's automotive industry. Standard Bank estimates a global palladium deficit of 1.65m oz for 2014, 1.43m oz in 2015 and 1.88m oz in 2016.
Commodity ETFs are viewed as a separate asset class and the commodity itself is a good investment to complement one's portfolio, says Mr Erasmus. Equities can give you a different leverage that changes with underlying company fundamentals. The commodity gives you a broader exposure to the economy and in fact to economies outside of Africa. The commodity ETFs offer investors a different investment class with several benefits including exposure to the physical commodity, some level of protection from negative real interest rates and a hedge against currency depreciation.
In addition to the AfricaPalladium ETF, Standard Bank also has the AfricaGold and AfricaPlatinum ETFs listed on the JSE. The AfricaPalladium ETFs will be treated as a local asset and have no exchange control implications for Namibian investors. For more on these investment opportunities, see www.standardbank.com/cib.
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