Positive Outlook for Southeast Asia’s Retail Markets

May 1, 2023 — Singapore

Fund managers will need strong differentiation amid the proliferation of products

Southeast Asia ex-Singapore’s retail fund markets hold significant potential, supported by the region’s economic recovery from the pandemic and increased wealth accumulation. A broader range of product options is also promising for the markets.

In 2022, the region’s bond and money market funds recorded net outflows of US$8.9 billion and US$10.4 billion, respectively, as investors lost confidence in governments’ ability to repay their debts due to high debt levels and rising interest rates. This contributed to the fall in the 2022 shares of foreign-invested mutual fund assets in Thailand, Malaysia, and Indonesia, with some of the largest fixed-income feeder funds in the region seeing massive outflows during the year.

At the same time, Southeast Asian equities gained from China’s stringent zero-COVID policy, as they served as a refuge for investors looking to avoid the battered Chinese equities. While this was largely temporary—with many investors having flocked back to Chinese equities after China started lifting its COVID-19 restrictions at the end of 2022—the country’s reopening has unlocked opportunities to offer China-invested funds. Moreover, funds that focus on China have been proven to have the ability to attract assets—several Greater China equity funds are already some of the largest feeder funds in the region and have been particularly successful in raising funds in Thailand.

In terms of thematic funds, technology and healthcare remain popular, judging by the number of fund launches in these sectors. Local fund managers continue to invest in overseas master funds to provide exposure in these sectors. With the slow development and the lack of depth in these sectors in local markets, global fund managers continue to have opportunities to position their offshore funds.

At the same time, the region’s pool of Shariah-compliant funds has been expanding steadily with new fund launches, providing a growth opportunity for fund managers. Cerulli’s recent conversations with Malaysian industry players show that their bank partners have been asking for Shariah-compliant funds focused on China. Meanwhile, the rise of funds that combine the principles of environmental, social, and governance (ESG) and Shariah investing continues. Cerulli understands that fund managers and distributors find these products more sellable compared to purely ESG or Shariah products, as they appeal to a broader spectrum of investors.

“The retail fund markets of Southeast Asia ex-Singapore present significant opportunities for managers. This is a result of favorable economic outlooks, supportive regulatory environments, demographics, and new avenues for fund distribution with greater investor reach,” said Justin Lee, associate analyst.

“However, the region is becoming increasingly competitive as more products come to the markets, including crypto assets and heavily marketed investment-linked insurance plans,” he added. “To make some headway, fund managers will need to differentiate themselves through strong and diverse distribution channels, innovative product offerings, and marketing strategies tailored to individual target markets.”

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Note to editors

These findings and more are from The Cerulli Edge—Asian Monthly Product Trends, April 2023 Issue.

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