MUTED market performances and low interest rates are likely to further boost growth of the exchange-traded funds (ETF) market in the Asia-Pacific region, according to Deutsche Bank.
The bank's data reveals that the Asia-Pacific market in exchange-traded products spiked by US$19 billion as at June 15 on a year-to-date basis, 21 per cent above last year's closing. The number of ETFs also increased 17.6 per cent, from 398 to 468 over the same period.
Based on the results of the bank's Asian ETFs Survey, which polled 300 investors in the Asia-Pacific market, 85 per cent of investors expressed interest in buying more ETFs in the next 12 months, up from 65 per cent in 2011.
Half of these investors are also considering high- dividend theme and commodity ETFs in the year ahead. Attributing this to the difficult present market situation, Marco Montanari, head of db X-trackers ETFs for Deutsche Bank in Asia, said: "We look at the high-dividend indices, indices that track stocks with higher dividends. They normally do better when the market is not performing that well, as these indices are mostly based on value stocks, not growth stocks."
More specifically, Mr Montanari pointed out a greater interest among investors for corporate bonds or credit ETFs, noting that traditional risks associated with these ETFs such as interest rate hikes and widening credit spreads are less apparent in the current low-interest-rate environment. "While there may be macroeconomic events which widen credit spreads . . . investors are in a distressed situation. They don't think things can get much worse," he said.
A clearer understanding of ETF investment considerations is also leading Asian investors back into the Asian space. "Many investors don't play ETFs with low on-screen volumes because they think the ETFs are not liquid. This pushes them to Europe and the US, (but this comes) with time zone and tax disadvantages," Mr Montanari said.
Nevertheless, the Asian ETF market is still in a nascent stage, with Mr Montanari estimating assets under management here to be one-fifth that in Europe, and one-fifteenth that in the US. He also estimated that 90 per cent of Asian investors still invest in ETFs for equity exposure, compared to as low as 70 per cent in Western markets, demonstrating the lower popularity of fixed-income and commodity ETFs here.
Nevertheless, he concluded: "ETF providers are seeing opportunities here . . . the market is still small, but growing very quickly."