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Korea outpaces HK in ETF assets

All markets in Asia-Pacific saw growth in AUM for ETFs in the first half of 2018, except Hong Kong and Singapore, according to Cerulli Associates.

ETF assets in the region expanded by 12.8% during the first six months of the year, on the back of 35.7% growth in 2017; by comparison, mutual funds saw an increase in the same periods of 8.5% and 12.5%, respectively.

In total, Asia-Pacific (ex-Japan) ETF assets now stand at $213bn as at the end of the June 2018, with China, Korea, Taiwan and India seeing total inflows of around $24.2bn this year, according to the Cerulli report.

The only markets to experience declines in AUM were Singapore (-2.8%, to $1.8bn) and Hong Kong (-9.4%, to $34.3bn), added the report.

In Hong Kong, equity ETFs suffered from outflows of $3.1bn this year, Ken Yap, managing director for Asia at Cerulli, told FSA.

“This is mainly due to HK ETFs tracking China and Hong Kong indices. The largest outflows were observed at the start of the year when investors decided to cash-out while markets were doing well.”

Turning to Singapore, Yap said equity ETFs also suffered, but with smaller outflows of $46m during the first half of the year. “The rest of the decline could be attributed to market correction,” he added.

Because of Hong Kong’s decline in ETFs, Korea is now the second-largest ETF market in Asia-Pacific (ex-Japan), with assets of around $35.5bn, the report noted.

On the flipside, Taiwan had the highest growth in ETF assets, at 46.2%, during the first half of 2018, spurred by institutions such as insurance companies, which are increasingly fee-conscious, said the report. Taiwanese managers such as Yuanta Securities Investment Trust and Cathay Securities Investment Trust also launched new bond ETFs, specifically targeting insurance companies, the report added.

More ETF launches? 

Key reasons for managers to develop ETF products include meeting clients’ demand for low-cost products, as well as needing to diversify current product offerings, according to the report, citing a survey that the firm conducted earlier.

Around 53% and 39% of managers in China and Singapore, respectively, have expressed intentions to launch index ETFs over the next two years.

In Korea, around 40% of the managers surveyed were interested in launching smart beta ETFs. Some managers interviewed by Cerulli in markets such as Singapore, Hong Kong and Korea, believe it will be easier for them to compete in the smart beta ETF space, compared with the conventional ETF space, which is dominated by larger asset managers.

In Hong Kong, more factor-based or smart beta ETFs have been launched, which include China-focused smart beta products such as those managed by Ping An of China Asset Management and Premia Partners.

Deborah Fuhr, London-based managing partner at ETF research and consulting firm ETFGI, said she believes there is still room for players to compete in a competitive ETF landscape, especially for those who will be providing more specialised ETFs, such as thematic and smart beta products.

“In gaining traction, it is hard to be a ‘me too’ player, even if you offer lower costs, because it’s hard to get people to switch,” Fuhr said.

Part of the Mark Allen Group.