Greater China Leads APAC in ETFs’ Assets Under Management

With exchange traded funds’ (ETFs) assets under management (AUM) reaching $557 billion, constituting 38% of the total Asia Pacific ETF assets of $1.485 trillion, Greater China has emerged as the fastest growing centre in the region, according to a new report.

In fact, Greater China is the most successful ETF growth story yet with growth rates in the region having outpaced global growth rates, albeit from a smaller base. For the first half of 2024 these markets accounted for $102 billion of net new flows, representing 70% of all net new flows in the region including Japan, the report said.

The report entitled “2024 Greater China ETF Investor Survey,” published by Brown Brothers Harriman & Co., the oldest and one of the largest private investment banks in the US, also paints an optimistic picture of further evolution through innovation as investors demand diversified products to mitigate risk and generate stable returns.

Brown Brothers Harriman has surveyed 103 ETF investors China Mainland, Hong Kong and Taiwan, who are managing over $1 billion in assets. Of them, 39% have more than 50% of the portfolio invested in ETFs, compared with 24% globally.

The three percent of overall market capitalisation suggests there is ample room for further expansion and opportunities for issuers. Last year’s survey findings showed investor interest in expanding their usage of ETFs and accessing diversified products.

“Our 2024 findings imply they are embracing these new strategies. We see markets expanding product platforms to meet interest in active, thematic, multi-asset, and defined outcome ETFs (buffered ETFs). Channels such as the Qualified Domestic Institutional Investor (QDII) and the availability of ETFs through Stock Connect are also driving China cross-border demand,” the report said.

The report also said that these markets present significant opportunities for managers. Demand is highest in Taiwan, currently one of the fastest growing ETF markets globally.

“As we have seen in previous years, investors are increasing allocations to ETFs, but they have options when investing. While there is traction for investors to use locally listed ETFs for Asia exposure, U.S. and European listed ETFs remain a substantial component of regional investors’ portfolios,” the report said.

This positive picture is supported by the 77% of investors who said they would be increasing their use of ETFs, compared to 75% in 2023. Even here there’s a wide dispersion across markets with 87% of investors in Taiwan planning to increase their ETF usage, compared to 77% in Mainland and 69% in Hong Kong.

Taiwan Fastest Growing

According to the report, Taiwan has exceeded expectations, with ETFGI reporting an 120% increase in ETF AUM from December 2022 to June 2024.

One of the fastest growing ETF markets is at the apex of demand driven growth, consistent with flows and 87% of investors looking to increase their usage. Unsurprisingly with institutional capital mainly from insurers, 47% of the ETF market is still made up of fixed income ETFs.

However, it’s seen material inflows from retail investors in the last five years. Income is a strategic focus of many Asian investors. In Taiwan, this has led to rapid growth in dividend smart beta ETFs. Two out of the top three ETFs in terms of YTD net new flows are dividend strategies.