The annual study evaluates countries in four categories: regulation and taxation, disclosure, fees and expenses and sales.
Among the four markets, Taiwan had the lowest score for fees and expenses in the Asia region.
| Country |
Overall grade |
Regulation and taxation | Disclosure | Fees and expenses |
Sales |
| Hong Kong |
Average |
Average | Average | Below average |
Above average |
| Singapore |
Average |
Above average | Average | Below average |
Above average |
| China |
Average |
Average | Average | Below Average |
Average |
| Thailand |
Above average |
Average | Above average | Above average |
Below average |
| Japan |
Average |
Average | Below average | Average |
Above average |
| Taiwan |
Average |
Average | Above average | Bottom |
Above average |
| Korea | Above average | Average | Above average | Average | Above average |
Source: Morningstar
Only Thailand and Korea received an “above average” overall rating. The report highlighted that Thailand was the only market in Asia with an above average score in fees and expenses.
Indeed, when compared to US markets, the fees and expenses of the major fund markets in Asia is double or even more in all kinds of funds, according to the study.
Fees and expenses (asset-weighted median)
|
Hong Kong |
Singapore | China | Taiwan | Thailand |
US |
|
| Locally domiciled: | ||||||
| Fixed income |
1.14% |
0.88% | 0.61% | 1.45% | 0.47% |
0.45% |
| Equity |
1.72% |
1.74% | 1.73% | 1.91% | 1.74% |
0.67% |
| Allocation |
1.41% |
1.43% | 1.76% | 1.32% | 1.36% |
0.64% |
| Domiciled elsewhere: | ||||||
| Fixed income |
1.42% |
1.40% | 0.62% | 1.45% | 0.47% |
0.45% |
| Equity |
1.89% |
1.89% | 1.75% | 1.84% | 1.74% |
0.66% |
| Allocation |
1.67% |
1.69% | 1.76% | 1.85% | 1.36% |
0.65% |
Source: Morningstar
Hong Kong
The cost to invest in funds available for sale in Hong Kong is higher than in many countries, according to the study. While locally-domiciled funds generally have lower expense ratios, these funds make up a small percentage of the total market, and investors largely choose from the more expensive foreign-domiciled funds.
In addition, most advice fees continue to be paid through the combination of front loads and trailing commissions. Investors also do not have the flexibility to forgo these loads and trailing commissions altogether, even when purchasing funds without advice, the report said.
Morningstar noted, however, that Hong Kong’s advantage is the absence of virtually any taxes on fund investments. In addition, the market received an above average grade for sales, as 80% of the funds are sold through an open-architecture system, and investors must receive a prospectus prior to the purchase of the funds.
China
In China, locally-domiciled funds dominate the market and their total expense ratios are higher than those in many other countries, particularly for equity and allocation funds, according to the report.
Sales loads are also prevalent in the country, with more than 70% of funds reporting a front load. These are negotiable for large investors only, although individual investors may be able to find funds sold at a discount through certain distribution channels, such as online platforms, the report said.
Although funds in China are not permitted to charge performance-based management fees, Morningstar noted that the only way for investors to obtain advice is by paying commissions and expenses.
Taiwan
Taiwan’s fees and expenses are among the most unfavourable not just in Asia but globally, according to the report. Fund costs are high, and fixed income funds in particular are the most expensive among all the countries in the study.
Taiwan also has the highest reported instance of front loads in both local- and foreign-domiciled funds available in the market.
Singapore
In Singapore, investors continue to pay for advice predominantly through front loads or ongoing expenses embedded in expense ratios, according to the study. It is rare for investors to be able to avoid these fees, and this leads to a low level of transparency around the cost of advice.
Locally-domiciled funds tend to be cheaper than those available for sale from other foreign jurisdictions, although both groups show higher fees than the medians gathered in the study.
The study however noted that Singapore receives an above average grade for regulation and taxation. Like Hong Kong, fund investors are generally exempt from all investment taxes in Singapore, although fund management services in the Lion City are subject to the goods and services tax.
