Outlook for 2025: Four growth areas to watch in Asia

As market participants plan for the year ahead, four expected growth areas stand out across Asia for closer examination:

1. A surge in private wealth in Singapore and Hong Kong – in turn accelerating the desire for more sophisticated financial services and investment opportunities.
2. Increasing demand for ETFs across Asia – amid greater appetite for fixed income and themes like artificial intelligence and automation, investors are seeking yield and more tailored exposures.
3. The rise of quant trading – fuelled by the ever-wider access to and influence of big data, plus a growing number of well-capitalised quant funds, all enabling algorithmic trading.
4. A more significant role for transition and physical climate risk – requiring a sharper focus on the escalating costs and other implications of climate change on portfolios.
    

“In each case, there is a need for more sophisticated data to support the development of products and services for investors in these segments,” said Cattan.

Riding Asia’s private wealth wave

Among the more compelling trends on the horizon is the increase in private wealth in Singapore and Hong Kong.

Broadly, all signs point to the growing contribution of Asia to global wealth. For example, Capgemini’s June 2024 report noted the region accounts for ~42% (or $218 trillion) of total global wealth¹.

Meanwhile, BCG’s Global Wealth Report 2024 noted that although financial wealth in the Asia Pacific region grew by only 5.1% in 2023, this was due mainly to a slowdown in wealth creation in China. BCG now expects a significant increase through 2028, with the region likely to account for nearly 30% of new wealth by this time.²

Hong Kong and Singapore are already key hubs, where capabilities and infrastructure across wealth management are expanding. Local and global players alike are looking to capitalise on the mounting opportunity.

To expand and deepen offerings, however, calls for more investment in front- and back-end tools and technology, plus a wider set of solutions across asset classes – beyond equities and structured products, to cater to renewed fixed income appetite among clients.

“Customers expect pricing in near real-time including OTC asset classes such as fixed income,” explained Cattan, “with the accompanying data and analytics to give clients the insights and transparency they need.”

The demand for digital tools is also increasing in line with the generational shift in wealth, he added. "Asia's younger wealthy population prefers digital tools and cutting-edge technology over traditional high-touch services."

Tapping into the ETF growth trend

The growing appetite for ETFs in Asia cannot be ignored. Research and consultancy firm ETFGI reported that assets invested in ETFs in Asia Pacific (ex-Japan) hit a new high of $924 billion at the end of June 2024. This was fuelled by net inflows of $142 billion in the first six months of the year, with fixed income contributing $30 billion.³

The diversity and depth of the ETF landscape across Asia is also growing, in part due to cash being put to work again after a prolonged period of high interest rates.

This creates broad scope for ETFs across the region going forward. Continued growth is forecast in Australia, Taiwan and China via retail flows, with Hong Kong and Singapore expected to see larger institutional flows. We may also start to see a shift in Japan from institutional to retail flow due to the NISA [Nippon Individual Savings Account] programme.

With greater comfort in allocating to ETFs, Japan is an exciting market as it examines how to transition more cash savings into products, enticing more foreign asset managers to enter.

“To feed all this appetite there is growing demand for index solutions, we’re seeing particular interest in our equity, fixed income and thematic indices,” said Cattan. In Asia Pacific over $40 billion in assets under management (AUM) track ICE indices.

Counting on the quants

A third area to watch in 2025 will be algorithmic trading, Cattan said. “There has been a notable rise in algorithmic trading over the past 12 to 18 months, spurred by the ever-greater availability and comfort with big data.”

With the required technology and data more widespread, many new quant funds have been encouraged to set up operations, some of which have spun out of larger hedge funds. At the same time, in line with the influx of family offices across Asia, many of the new quant funds have meaningful levels of AUM seeking returns.

There is also a consistent investment model across many of these new quant funds: separate, multiple pods to ensure diversification to generate returns from one or several of the portfolio managers running the funds.

“This approach requires access to a lot of data to support a multi-asset pod system which follows different trading strategies, assets and markets,” added Cattan.

To deliver on this constant high demand for data, working in partnership with tech providers is an effective option, to create and run the frameworks needed to meet the extent of data needed.

Keeping up with climate risk

A potential focus in 2025 and beyond, stems from the increasing significance of transition and physical climate risk and its impact on decision making with asset allocation.

“This is apparent in some markets in Asia which are further ahead in terms of the focus on climate issues,” said Cattan, “we’re seeing increasing appetite for transition risk analytics and data.”

In Japan, for example, led by GPIF’s thought leadership role on climate risk, many other pension funds and asset managers that look to GPIF as the benchmark need relevant data to support their investment process. By contrast, markets like China need to catch up given the vast amount of greenhouse gases emitted annually.

Yet obtaining information on greenhouse gas emissions can be challenging, especially beyond public companies. To address this, ICE utilises over a decade of historical data on Scope 1, 2, and 3 emissions from more than 9,000 publicly reporting global companies and models data for over 30,000 companies. 

Ultimately, investors want to better understand how companies are tracking towards net zero goals, added Cattan. Such data is essential as portfolios increasingly factor transition and physical climate risk into their investment decisions.

This highlights the need – as with the other projected growth segments in Asia in 2025 – for accurate, granular and comprehensive data to turn potential into reality, according to Cattan.

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_{Sources
1 - https://www.capgemini.com/au-en/news/press-releases/global-high-net-worth-population-and-wealth-back-to-record-levels-despite-global-instability/
2 - https://www.bcg.com/press/10july2024-global-financial-wealth-rebounds
3 - https://etfgi.com/news/press-releases/2024/07/etfgi-reports-assets-invested-etfs-industry-asia-pacific-ex-japan}