The exchange traded fund industry has experienced explosive growth in the United States, with around $1.5 trillion in assets under management. The Asia-Pacific region is currently the fastest growing market for the exchange traded fund business.
“ETFs offer an easy access to Asia which can otherwise be complex due to fragmented markets, each with their own set of regulations for investing. They can also serve as important investment vehicles in countries with restrictions on foreign access, such as China and India,” Shan Lan, ETF strategist at Deutsche Bank, said in a recent report. [Southeast Asian ETFs Heat Up]
The expansion of ETF products in Asia has been sparked by a huge interest in fixed-income instruments, along with market developments in China. ETFs have allowed investors around the world to access mainland Chinese A-shares that are listed in Shanghai. Regulators in China have also erased restrictions on the number of ETFs a manager can apply to launch, reports Chris Flood for Financial Times.
Evidence of the growth in the Asia-Pacific rim of the world is evidenced by the $142.9 billion in assets under management at the end of April. Plus, six of the ten fastest growing ETFs launched in 2012 were linked to Asian stock markets. [China ETFs for a Rebound]
The growth trend is expected to continue based on the looser restrictions in China, and other developments in the region. For one, listing rules for ETFs in the Philippines have been approved. The use of derivative-linked ETFs has been approved for use in South Korea. Furthermore, Vanguard has launched its first ETF in Hong Kong. [Philippine ETF Gains on Credit Upgrade]
Programs launched in China such as the Renminbi Qualified Foreign Institutional Investor program that launched in December 2011 was followed up by a launch of four RQFII ETFs that track indices made up of Chinese equities. The looser restrictions that have been implemented will also encourage more providers to launch various ETFs in the Chinese market.
“ETFs are a liberalization and a democratization of fixed income markets for investors, providing liquid and transparent exposures in what had previously been a difficult asset class to access,” says Ms. Jane Leung, head of iShares Asia-Pacific.
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.