China Leads Exchange-Traded Fund Growth in Asia ex-Japan

July 27, 2020 — Singapore

Assets grew at a double-digit rate in the first five months of 2020

China’s exchange-traded fund (ETF) assets under management (AUM), excluding those of money market ETFs, rose by 14.7% to US$93.6 billion in the January to May 2020 period. This was the fastest among Asia ex-Japan markets, and due to continued demand for passive investments, led by technology-related ETFs.

ETFs in China performed strongly in 2019, with AUM increasing by 49.7% to US$81.6 billion. Growth could be further boosted by the investment advisory pilot scheme launched in October 2019, given that they are low-cost and effective investments for such a model.

Total ETF AUM across Asia ex-Japan fell by 0.8% in the first five months of the year, amid volatile market conditions triggered by the coronavirus pandemic. Last year, the region’s ETF AUM increased 48.9%, led by Taiwan, India, and China.

Taiwan’s 130.6% jump in ETF assets in 2019 was mainly attributed to insurance companies seeking to beef up their overseas allocations through ETFs. However, this trend is likely to slow down in the near term, following the move to limit the frequency of bond ETF launches in September 2019 and the high volatility in the U.S. credit market in March 2020. Over the first five months of the year, Taiwan’s ETF AUM slipped by 0.2% to US$54.5 billion.

India’s 2019 growth, at 63.9%, was driven mainly by the Employees’ Provident Fund Organisation. There is limited appetite among retail investors in India, except among some high-net-worth investors. Despite this, the implementation of the trailer fee-based model last year and the improving use of digital channels has provided an impetus for the industry to consider low-cost products.

Korea also showed robust growth in 2019, with AUM up by 26.1% year-on-year, despite the slowdown in net inflows to KRW6.5 trillion (US$5.6 billion), the first since 2014. ETFs in Korea remain as strong competitors to mutual funds. While local ETFs remain popular, foreign-domiciled ETFs have seen growing interest from Korean investors due to favorable tax treatment and their hopes for better returns.

Compared to other parts of the region, most ETF markets in Southeast Asia ex-Singapore, including Indonesia, Thailand, and Malaysia, face liquidity issues due to thin volume. Investors need a brokerage account to invest in ETFs, but mutual fund investors in the region generally do not have one, as they are used to buying investment products from banks or agents. Within Southeast Asia ex-Singapore, Vietnam appears to have the highest retail interest in exchange-traded products, with managers telling Cerulli that these funds will continue to be a huge trend in the country.

“The ETF market in Asia ex-Japan is waiting to be tapped and will continue to complement active funds,” says Ken Yap, managing director, Asia with Cerulli Associates. “Although retail usage of ETFs continues to be limited in many markets, new product launches, regulatory initiatives, increasing pressure to deliver alpha amid fee pressures, and growing acceptance of online platforms could boost this segment.”

Note to editors

These findings and more are from The Cerulli Edge—Asian Monthly Product Trends, July 2020 Issue.

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