ETF Boom Predicted in Asia

October 30th at 6:00am by Tom Lydon

Exchange traded fund usage in Asia is anticipated to grow at a fast pace, according to a new study by Greenwich Associates. About 40% of asset managers and distributors that participated in a survey stated they will use ETFs in the next few years.

“Part of the reason for the slow start for ETFs in Asia compared with other markets is that the first deal came about as much by accident as by design. Back in 1999, the Hong Kong government was looking to offload stakes in various companies it bought during the Asian financial crisis. An ETF just happened to be the quickest and most efficient way of ensuring that everything got sold,” Paul J. Davies wrote for Financial Times. [Three Investment Strategies for the New World]

Greenwich Associates interviewed 123 asset managers, institutional investors, traders and distributors across Asia and of these, 46% said they would continue to use their current allocations to ETFs. [ETF Market Heats up in Asia]

Asian institutions are sitting on huge growth opportunities and are managing growing pools of capital that are fueling demand for a more diverse range of investments, reports Chris Flood for Financial Times.

In 2012, both Hong Kong and mainland China have launched innovative products that use cross-border cash focused ETFs. Ad some first cross-market ETFs in China can also invest in Shanghai and Shenzhen markets at the same time.

Even though China might be extremely keen on attracting more foreign money into its stock markets, Jane Leung, head of ETFs in Asia for iShares, says domestic funds make up the vast proportion of what’s in the the market. This leaves plenty of growth for foreign investment, and the ETF vehicle is perfect to maintain the liquidity that an overseas investor would seek. Foreign money still accounts for only 3% of the Chinese stock markets.

Frank Henze, head of ETFs Asia-Pacific at State Street Global Advisors, noted that Asian institutions were less likely than US institutions to use ETFs in tactical investment functions such as portfolio rebalancing or for putting money to work quickly in the market, a practice known as cash equitization.

 

Tisha Guerrero contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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