Asia’s ETF market ended 2017 with US$430 billion of assets under management. The pace of growth is nothing to sniff at as it has more than tripled in size over the past five years. But it still lags North America and Europe with each region accounting for US$3.4 trillion and US$757.5 billion, respectively. Indeed, excluding Japan’s US$275.8 billion ETF market, investors in the rest of Asia have only started to uncover what’s behind the surge of activity in the rest of the world. Given its modest size, ETF in Asia has still some ways to go.
But the slow and steady increase in its adoption could soon give way to more robust activity in the coming years. Regulators around the region are actively promoting the usage and offering of ETFs for domestic investors. Institutional investors in Asia are also becoming more familiar with ETFs and using them to achieve their investment objectives whether strategic or tactical. China’s opening will spur increased two-way activity with global investors looking to participate in Asia’s largest capital market while Chinese investors diversifying overseas to increase their international exposures. The launch of the ETF Connect, expected in the second half of this year, could see a bump in new ETF launches or inflows into existing ETFs that are positioned to take advantage of the easier access.
These positive factors, however, have to juxtapose against the challenges ETFs faced in the past years. Beyond markets such as Japan, South Korea, Hong Kong and Taiwan, education is critical to see more activity especially in Southeast Asia. Other headwinds include cultural investment practices and also the commission-based distribution channels that place ETFs at a disadvantage.
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