What’s driving the Asia Pacific boom in ETFs?

ETFs listed on Asian exchanges that track ICE's indices surged by over 70% in 2024, reaching a record AUM of $45.15 billion. The trend is set to continue as a new breed of ETFs are launched to meet the unique needs of investors across markets such as Japan, Taiwan, South Korea and China.

These investors want new thematic and specialised ETFs to tap into the major forces that are set to reshape the world economy, such as AI and growing automation. Attractive fixed income yields and easier access to the asset class are boosting the appeal of bond ETFs. And a new breed of ETFs is also allowing investors to build more tailored portfolios.

Equity ETFs still popular as greater customisation beckons

Equity ETFs still dominate Asia-Pacific markets. About 82% of ETF assets in Hong Kong are equity-based, and in Japan, ETFs that track the Nikkei 225 and TOPIX equity benchmarks have accounted for a significant majority (97%) of total ETF assets.¹ However, the nature of these equity-based ETFs is changing with a broader variety of products now on offer.

ICE is seeing rising demand among ETF providers for its suite of equity indices that include the NYSE Global Equity Market Index Family and ICE/NYSE FactSet thematic and fundamental equity indices.

ICE plans to expand this offering by creating benchmarks covering equities listed in selected Asian developed and advanced emerging markets such as Australia, New Zealand, Hong Kong, Singapore, South Korea and Taiwan.

The full benchmark index suite will be available on the web-based ICE Custom Index Tool, which allows fund managers to prototype and back-test customised indices to ultimately be used for a variety of use cases, including as ETF benchmarks. Using the tool, ETF providers can see how different rules impact the historical performance and composition of the prototype in the context of the hypothetical back-test.

Investment themes driving new ETFs

Investors across the Asia Pacific region are increasingly looking for more tailored investment options than traditional market-cap weighted ETFs.

This has spurred a rising number of products that tap into investment themes which are seen by some to have the power to transform economies, such as semiconductors and AI. ICE has seen particularly strong demand for investment theme-based ETFs in Taiwan and South Korea, where retail investors account for more than half of ETF assets.¹

The semiconductor industry is attracting significant attention, with markets such as Taiwan, Japan, China and South Korea home to many of the world’s largest companies in this sector.

Semiconductors – and the resulting microchips – have revolutionised the world by powering smartphones, computers, vehicles and, most recently, advancements in blockchain, cryptocurrencies, AI and machine-learning. Global semiconductor sales are projected to grow by 12.5% in 2025 to a record $687 billion, according to the WSTS Semiconductor Market Forecast Spring 2024.

Demand for fixed income ETFs rises

The search for income is another driving force behind new ETF launches across the Asia Pacific region. A higher interest rate environment in recent years has made the fixed income sector even more attractive to retail investors, who are particularly gravitating to US Treasury ETFs.

Demand for fixed income ETFs is rising in Japan, Korea and Australia – markets that were historically domestically-focused but are now showing more interest in global themes. 

Taiwan remains the standout bond ETF market with ~NT$3.05 trillion ($94.1 billion) in fixed income ETFs, according to the Taipei Exchange, which makes it the largest fixed income ETF market in the Asia Pacific region.²

ICE’s fixed income indices are built on robust evaluations and reference data, allowing fund managers to build a wide range of customised ETFs. This reference data covers approximately 79 million financial instruments (both active and inactive - ie. historical) across more than 210 global markets.³ ICE’s range of fixed income indices includes ~7,000 standard indices tracking more than $110 trillion in debt.⁴

Going forward, ETF growth looks set to continue: 77% of APAC respondents to a PricewaterhouseCoopers survey believe regional ETF assets will reach at least $2.5 trillion by June 2028, representing a 17.8% compound annual growth over the coming period.⁵ It’s a dynamic driven by rising wealth and investor sophistication, as appetite for liquid, cost-effective access to a variety of assets and strategies continues to flourish.

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_{Sources
1 - Understanding Hong Kong’s ETF Market Landscape, Hang Seng Investment. March 2024 https://cms.hangsenginvestment.com/cms/hsvm/insights/Chapter%202%20Analysis%20of%20APAC%20ETF%20Market.pdf.
2 - ETF Trading information and AUM (Monthly), November 2024. - 證券櫃檯買賣中心. Retrieved from https://www.tpex.org.tw/en-us/product/etf/info/month-stat.html.
3 - ICE 2024. All coverage numbers are approximate. Evaluated pricing services for fixed income securities are provided in the U.S. by ICE Data Pricing & Reference Data, LLC and internationally through ICE Data Services entities in Europe and Asia Pacific.
4 - ICE Data Indices, As of October 31, 2024.
5 - PricewaterhouseCoopers (PwC), "ETFs 2028: Shaping the Future," March 2024.}