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Malaysian firms in ETF tie-ups with foreign players

Since November, six L&I products have been launched in the country, but demand is expected to be low.
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Although Malaysia’s first ETF was launched in 2005, there were only 11 ETFs listed on the local bourse as of the end of October, according to data from Bursa Malaysia.

The slow growth of the market seems to be unsurprising to most players. According to a recent Cerulli Associates report, domestic fund managers do not expect the demand for ETFs to grow explosively in the short-to-medium term due to the lack of retail investor understanding.

However, this has not stopped some firms from launching new kinds of ETFs.

Two domestic players – Kenanga Investors and Affin Hwang Asset Management – have recently rolled out the country’s first leveraged and inverse (L&I) ETFs. Both firms have collaborated with foreign players to help them develop the products.

Leveraged and inverse ETFs make a bet, using leverage determined by a multiple, either for or against a market index and are typically used in day trading. Demand for the risky instruments is expected to be low.

Teng Chee Wai, Affin Hwang’s managing director, previously said that while L&I products are the next step for ETF market diversification, he is not sure whether they will gain traction from investors.

“[The ETF market] is a very tough business in Malaysia,” he said in a media briefing last year when the firm was preparing to launch the L&I products.

“Malaysians don’t like ETFs, but other countries love ETFs. We will try, but I am not sure if we will be successful in getting many trades with ETFs.”

Foreign partnerships

Kenanga Investors rolled out two L&I products this week, which are the Kenanga KLCI Daily 2X Leveraged ETF and the Kenanga KLCI Daily (-1X) Inverse ETF. The launch of the products also marks the firm’s foray in Malaysia’s ETF industry, according to a statement from the firm.

The firm partnered with Taipei-based Yuanta Securities Investment Trust to develop the ETFs. According to a separate Kenanga Investors document, Yuanta Securities serves as the “technical advisor” of the products.

Being a technical advisor involves different duties, which include advising Kenanga on the structure of the products, providing the firm with training and education, and assisting with the promotion and marketing of funds.

In Taiwan, Yuanta is one of the largest providers of ETFs. The firm has also acted as a fund advisor for Thailand’s Krung Thai Asset Management and E Fund Management in Hong Kong to list ETFs in their respective markets, according to the document.

Meanwhile, Affin Hwang partnered with Samsung Asset Management in Hong Kong to co-develop L&I products. Affin Hwang was the first to introduce L&I ETFs in November when it simultaneously listed four L&I products.

Since their launch, the four products collectively now have around RM 6.8m ($1.67m) in assets, according to the firm’s website.

A Kuala Lumpur-based Affin Hwang spokesman said Samsung AM serves as the investment advisor for the four L&I ETFs.

Outside of ETFs, other domestic fund managers have partnered with foreign firms to diversify their fund offerings, given that most of their capabilities are focused on domestic securities.

For example, RHB Asset Management established a sub-advisory partnership with China Asset Management in Hong Kong in 2018 to co-launch a China-focused shariah-compliant fund in Malaysia.

Also in the same year, Maybank Asset Management and Schroders tied up to co-develop a range of investment products for Malaysia’s sophisticated investors.

Part of the Mark Allen Group.