ETF players must keep up with major changes in Southeast Asia
09 November 2012
News, Asia, Southeast Asia
By Toby Garrod
Players in the exchange traded fund industry need to acknowledge the dramatic advances taking place across the Southeast Asia markets in regard to financial market integration, product development and rapidly increasing financial wealth, says Chee-Ping Yap, managing director, head of fund services, Asia Pacific, global transaction services at Citi.
“Across ASEAN, there are three common regulatory landscape changes and changes in the dynamics of the market that we all need to pay attention to,” he said at Citi’s Asia ETF Conference 2012.
“First is the broader effort among the stock exchanges to encourage intra-ASEAN trade. There are already arrangements being made to allow stocks listed on a couple of ASEAN stock exchanges to take advantage of these changes. I know collaborations are going to start with Malaysia and Singapore first, followed by Thailand. With Indonesia marking phase three. With this, you’re going to see cross-listing among the exchanges, which has pretty significant implications for ETFs. Right now, the only way to get into the Thailand market with an ETF is to go through a local partner, who will set up a wrapper.”
While the authorities build intra-regional market frameworks, the region’s citizens are building up the stuff that keeps the markets flowing.
“The second key theme for the ASEAN ETF market is the rapid accumulation of wealth going on here,” he says. “I don’t think many people are paying too much attention to that. Of course, people know that Singapore is a centre for the accumulation of wealth, but a lot of people don’t really understand the facts on the broader ASEAN region. While people are aware of large asset managers like Mirae in Korea, or that Taiwan is a big market, given the high number of high-net worth individuals, they may not know that the largest asset manager in Taiwan, which has about US$15 billion in AUM, is a lot smaller than the largest asset manager in Thailand, which has about US$25 billion AUM. Of course it’s not as big as Mirae, which has about US$50 billion, but it is growing very rapidly. The largest asset manager in Malaysia also has about US$25 billion.”
It’s not just the citizens that are getting wealthy.
“That rapid accumulation of wealth is taking place among both retail high-net worth and institutional investors,” he says. “On the institutional side, few are aware of the growth. For instance, the largest palm oil company in Malaysia had US$10 billion AUM four years ago. Now that figure has risen to US$40 billion.”
Meanwhile, there is an increasing trend for investors in the region to diversify investments across global markets.
“I met the largest asset manager in Thailand a few weeks ago, and more than 50% of the AUM is in non-Thai assets. Five or six years ago, that figure would have been 15%,” says Mr. Yap.
The third important change, according to the market veteran, is the development of REITs in the region.
“Thailand, Indonesia, and the Philippines are all coming out with REITs regulation,” he says. “And there is certainly demand for REITs products. Property has always been seen as a way of fighting inflation. Countries, such as Singapore, have suffered many years of inflation pressure, and property is seen as a way to combat that. You’ll find that going to countries like Thailand, Indonesia and Malaysia, there is strong demand for REITs products and REITs ETFs.”
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