Asia’s exchange-traded fund (ETF) market is in the midst of a remarkable expansion, with assets under management climbing to nearly $980 billion as of July 2024. Net inflows of $191.1 billion in the first half of the year alone underline the surging interest among both institutional and retail investors. The appeal of ETFs in Asia is driven by their efficiency, relatively low costs, and adaptability to volatile markets. As investors seek more diversified, transparent, and liquid investment vehicles, ETFs are emerging as a compelling alternative to traditional mutual funds.
One of the structural forces behind this growth is the increasing role of Delta-One trading desks in major financial institutions. These desks are instrumental in offering synthetic exposure to restricted or hard-to-access markets, such as China A-shares or Indian equities. Their expertise in swaps, futures, and other derivatives not only enables access to these regions but also facilitates liquidity provision and ETF seeding. This infrastructure plays a vital part in accelerating the launch of new ETF products and ensuring they have the trading support needed to thrive from day one.
There’s also a clear shift in investor appetite toward more specialized and responsive products. Active ETFs, which were once marginal, have ballooned from $11.5 billion in 2017 to around $40 billion today. Thematic ETFs, focused on dynamic sectors like electric vehicles, clean energy, and biotechnology, are attracting investors who want to tap into long-term global trends. These funds combine accessibility with a narrative, offering exposure to stories that resonate—like climate change, innovation, or the digital economy—while still delivering the core advantages of the ETF structure.
Leveraged and inverse products are expanding the frontiers of what ETFs can offer, with some issuers, like CSOP, launching single-stock leveraged ETFs in Hong Kong. These are sophisticated instruments that appeal to short-term traders and hedgers looking to manage specific risks or enhance tactical positions. Beyond product development, banks are adding further value by providing securities lending, custody, and advisory services that optimize ETF performance and economics. Altogether, Asia’s ETF ecosystem is rapidly evolving into a robust, innovative, and highly attractive segment of the global financial markets.
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