China’s Growing ETF Footprint

April 15, 2019

Types Of ETFs In Demand

Investors surveyed looking to expand their ETF usage said their wish list of funds includes more smart-beta funds, more actively managed ETFs, as well as more ESG (environmental, social, governance) and core index ETFs. From an asset class perspective, they also want more fixed-income and U.S. equity ETFs (see tables below).

Some interesting stats here include the fact that 97% of investors surveyed in Greater China have at least one smart-beta ETF in their portfolio, the survey notes. And almost 40% of these investors are looking to increase their allocation to smart-beta funds.

On the active front, however, access to active ETFs is still limited, if not completely nonexistent, for most investors in the region. That could be about to change. Earlier this year, regulators in Hong Kong allowed ETF issuers to launch active funds there for the first time. Active ETFs are still not allowed in the mainland or in Taiwan.

“Active management continues to have a strong position in Asia, and the ability to launch active strategies in a low-cost wrapper could be attractive to investors,” the report said.

Also of note is the appetite for ESG investing in Mainland China and Taiwan, according to the survey, which found that investors in Greater China have only one ESG ETF listed in the mainland. Regulators across all three markets have recently taken various steps on this front, introducing new reporting rules and disclosure requirements, all with the goal of encouraging socially and environmentally responsible investing.

“ESG ETFs are still new globally, but given increasing interest from respondents, this will be an area to watch in 2019,” the survey said.

 

For a larger view, please click on the image above.

 

 

For a larger view, please click on the image above.

 

Head Winds ETFs Still Face

ETF adoption across Greater China is picking up steam, but it still faces some important challenges. The first is ETF trading, still described as “difficult” and “expensive” by a large number of investors in the region. Unpredictable or “too wide” spreads when it comes to execution are another big concern preventing investors from fully embracing the vehicle.

“The results highlight how much opportunity exists for global intermediaries to continue to improve the user experience and make trading ETFs more cost effective,” the report said.

 

For a larger view, please click on the image above.

Sources: BBH, ETF.com

 

 

Outlook

While challenges persist, the outlook for the ETF market in Greater China is positive thanks in part to ongoing education efforts, as well as to an ETF-friendlier regulatory landscape, encouraging product innovation and improved access across the region.

“Despite 2018’s market volatility, ETF AUM [assets under management] for these three markets grew 18%, from $92 billion to $108 billion,” the survey found. “This year’s results tell a similar story: The Greater China region continues to embrace ETFs and product innovation will accelerate growth.”

You can see the survey in its entirety here.

Contact Cinthia Murphy at [email protected]

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