Exchange-Traded-Fund (ETF) growth in the Asia-Pacific region is set to continue at a rapid pace on the back of inflows and new issuers entering the market.
This is according to a new report from State Street, which expects ETFs in Apac to grow 30% in 2025.
Last year, the region saw ETF assets grow 47%, significantly higher than the global growth rate of 28%.
State Street described the growth as “explosive” and “astounding” since 45% of the growth came from inflows and only 2% came from market appreciation.
The firm said the growth was broad and wide across all asset classes (equity, fixed income, commodity, cryptocurrency) and strategies (active, passive, smart beta, leveraged/inverse).
Ahmed Ibrahim, head of ETF solutions, Apac at State Street, said: “Within Asia-Pacific, the China ETF market experienced the most significant growth of 75% year-on-year in 2024, with over 60% of it coming from net inflows.”
“The three big themes for 2024 were ETF buying by the state government, expansion of the ETF Connect scheme with Saudi Arabia and Singapore, as well as some of the largest ETF firms coordinated 70% fee reductions after the China Securities Regulatory Commission (CSRC) signalled the need to advance the reforms.”
State Street expects China’s ETF market to surpass Japan to become the largest in the Apac region on the back of continued state fund purchases.
Chinese authorities have been encouraging fund firms to increase their local equity holdings by 10% over the next three years.
Ibrahim said: “While still holding onto the crown of the largest market in the region, Japan has had that position eroded since the Bank of Japan stopped ETF purchases in 2023.”
Frank Koudelka, global head of ETF solutions at State Street, expects strong inflows into the Apac region to persist and for actively managed ETFs to rebound as more global issuers enter the market.
“Retail investors in the Asia-Pacific region are increasingly turning to ETFs for their flexibility, tax efficiency, and ease of access, and younger investors are leading the charge,” he said.
“With the growth of asset classes, more regulators are updating their rules to encompass active ETFs, opening up new markets and attracting additional clients,” he added.
