Hong Kong’s exchange-traded fund listings fell in the first half of the year and funds raised plunged 87.3% amid global market volatility, with the outlook for the second half clouded by a risk-off investing environment and concerns that China’s zero-Covid policy is taking a heavy toll on the world’s second largest economy.
Figures compiled by Morningstar Inc show that ten new ETFs were listed in January through June and they raised US$59.3 million, compared to 15 ETFs that raised $466.72 million in the first half of 2021.
Evonne Gan, associate director of Asia Pacific at Broadridge Financial Solutions Inc, says initial public offerings of mutual funds and ETFs have slowed due to increased market volatility in the wake of the war in Ukraine, China’s Covid-19 policy and rising global inflation. And unlike last year, investors are not flocking into China-focused funds.
“In Hong Kong, many of the new ETFs listed in 2021 were investing in China or the Greater China region. However, fund flows into Chinese equities and Greater China mutual funds and ETFs have seen a significant decline [thus far] in 2022, compared to 2021,” Gan tells Asia Asset Management (AAM).
China’s economy grew just 0.4% in the second quarter, the slowest pace in two years, underscoring the impact of lockdowns to curb the spread of Covid-19.
On August 15, the People’s Bank of China moved to shore up the economy by cutting interest rates for the second time this year.
In spite of the lacklustre primary market for ETFs, Gan says individual broad-based funds in the secondary market still look attractive to investors.
For example, she says Tracker Fund of Hong Kong and iShares Core MSCI Asia ex Japan Index ETF recorded “strong” inflows in the first half from investors buying the dips.
Nevertheless, she expects the overall investment climate to remain one of caution, even though Hong Kong itself has been able to bring the Covid-19 outbreak under control and quarantine rules have been relaxed.
According to Keith Chau, a partner for asset and wealth management at PricewaterhouseCoopers Hong Kong, the city’s ETF market has yet to reach its full potential.
“The key to a successful ETF strategy is envisioning how products can address the needs of investors of all types and ensuring distribution channels are strengthened, while bolstering investor education initiatives,” Chau tells AAM.
Total assets in Hong Kong’s ETF market as of June was $52.89 billion, up 7.54% from $49.18 billion a year ago.
