First-half ETF market growth underlines Asia potential

Asian ETF asset growth continues to outpace that in Europe and the US, according to the latest sector research from US asset manager BlackRock.

The Asia-Pacific ex-Japan exchange-traded funds market gained 14.9% in assets in the first half of 2011 to grow to $61.2 billion from $53.3 billion at the end of last year. The increase clearly reflects net inflows, given the MSCI AC Asia Pacific Index rose by 0.5% in the same period.

Japanese ETF assets, however, fell 3% in the first half to $31.2 billion, against a -4.8% drop in MSCI Japan Index in dollar terms. Hardly surprising perhaps, given the earthquake and tsunami that hit the country on March 11. That much is suggested by a 4.6% rebound in AUM in June.

These figures compare with a 10% rise in global ETF assets to $1.44 trillion from $1.311 trillion, though admittedly growth in Asia is from a far lower base.

Still, given the rising demand for Asian exposure, ETFs listed in the region would no doubt have attracted even more flows, were it not that an estimated 50% or more of Asian institutional money invested in ETFs goes into products listed outside the region.

“While Asia’s tremendous wealth creation means the region has the potential to be the world’s fastest growing ETF market, this is not guaranteed,” says Nick Good, Asia-Pacific head of BlackRock’s iShares ETF unit.

“If Asia is to fulfil its potential, and match levels of ETF penetration achieved in other regions, the industry must better educate investors in the benefits of specific products and explain how these products fit into an effective portfolio management strategy,” he tells AsianInvestor. “It must also get smarter at developing and listing products that are relevant to domestic investors.”

Meanwhile, Asia-Pacific ex-Japan average daily trading volume in ETFs also rose in the first half, by 4.9% to $0.8 billion, up from $0.7 billion in June 2010.

State Street Global Advisors and iShares remain the first and second largest Asia-Pacific ex-Japan ETF providers in terms of assets, with $12.9 billion and $9.8 billion respectively. However, both saw a 2.8% slip in their regional market share.

Several managers – particularly Chinese firms – launched their first ever ETFs in the first half. New entrants included mainland companies China Merchants Fund Management, Fullgoal Fund Management, Guotai Fund Management and Lion Fund Management, as well as Korean players Midas Asset Management and Kyobo Axa Investment Management.