Asia’s Fund Industry Resilient Amid Concerns

Despite uncertainties resulting from trade tensions, Asia’s mutual fund industry continued to expand in 2018, albeit at a lower rate compared to the previous year. However, growth potential still exists in various areas.

In 2018, a year in which the U.S.-China trade war loomed large, growth in Asia’s mutual fund assets under management (AUM) fell to a five-year low of 4.2%. As the trade conflict continued into 2019, AUM rose by just 4.6% year-on-year as of September, or 6.0% in the first nine months. China, which accounted for half of the region’s assets, recorded a mere 4.2% increase.

Key trends in the first three quarters of 2019 provide some indication as to where growth opportunities lie. These include:

Bond funds in Hong Kong, Korea, Singapore, and Taiwan, which attracted inflows due to conservative investor sentiments. Exchange-traded funds (ETFs), which are doing well in some markets.

In Taiwan, onshore ETFs registered considerable asset gains in the first three quarters, driven mostly by ETFs with foreign exposure.

ETFs in Korea have grown modestly, although smart beta ETFs have recorded double-digit growth. Retirement assets, especially in markets with aging populations. Taiwan’s “Enjoy Your Retirement” program has been successful in getting the public’s attention, with about 36.4% of the 11,000 registrants subscribing to their preferred funds in early October.

In Korea, target-date funds continue their strong expansion. Responsible investing, which is led by large asset owners. Australia and Japan are way ahead of other markets, although Hong Kong is taking the lead in putting forth guidelines for environmental, social, and governance (ESG) disclosures and reporting.

“Asia’s fund industry is proving resilient despite the various headwinds,” said Ken Yap, Managing Director, Asia, with Cerulli Associates. “Initiatives such as the revision of frameworks for private fund domiciliation and ESG in Hong Kong, commitment to building a fintech hub in Singapore, measures on debt funds in India, and restrictions on trailer-fee hikes in Taiwan demonstrate regulators’ continued efforts to strengthen the asset management industry. While the outlook may be uncertain, good prospects remain in various segments.”