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Asian ETFs: getting over the gain line

Asian ETFs: getting over the gain line

I recently participated on an ETF roundtable hosted by Euroclear in Hong Kong on the future of Asia’s growing ETF sector discussing how more liquidity and diversity really can deliver more opportunities for investors.

ETFs have a big role to play in the region as both institutional and retail investors look to diversify their portfolios, achieve more consistent returns and gain exposure to some of the world’s fastest growing economies – most notably, of course, China.

The discussion was moderated by ETFGI’s Deborah Fuhr, who did a great job keeping us all in order. In fact, her CNBC experience shone through… My fellow panellists represented the major players in the ETF space in Hong Kong, which vies with Singapore as the region’s hub for ETFs. They included investors, issuers, liquidity providers and stock exchange.

They were all extremely knowledgeable about the different characteristics of Asian ETFs in areas such as listing rules, liquidity, tax treatment and the challenges surrounding cross-listing activities. There was an equally expert audience that was not afraid to express some strong opinions.

For all that, there was a consensus about what needs to be done to ensure Asia’s ETF market flourishes: in short, improve liquidity and get the message across to more investors.

The first step – improving liquidity – requires the industry to build better scale via cross-listings on multiple trading venues for individual ETFs. That can only be done through a dialogue with regulators and exchanges. Interestingly, this RMB article talks more about this here.

Settlement processes need to be simplified, as the market should move from a fragmented model to an integrated one, as in Europe. Allowing practices that ease the capital burden on market makers would also greatly improve liquidity. ETF managers can do their part too, by closing or merging issues that lack scale and where there is little trading.

The second step is investor education. I know HKEX is active in this area.

As I’ve written before, Euroclear’s role as the premier provider of cross-border settlement and custody services puts us in a unique position to explain the benefits of cross-listed ETFs. We give issuers and promoters access to vast array of investors. As part of the process, we are always happy to educate investors on how they can gain from our efficient post-trade processes and exploit the opportunities for securities lending and collateral optimisation.

ETFs are entering the next phase of their development, and we should be energetic about promoting their value both in Asia and throughout the world.

Find out more from the team and I on the latest ETF developments and our efforts to support sustainable global development or contact me.

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Mohamed M’Rabti

Mohamed M'Rabti, Euroclear

Mohamed M’Rabti, Director and Deputy Head of Capital Markets, is responsible for Euroclear’s Equity-Linked Asset solutions and FundSettle. 

Mr M'Rabti began his career at Euroclear in 2004. Before taking up his current position in 2012, Mr M’Rabti held a number of senior positions within the Euroclear group, including Strategy Issuer Services in the Product Management division. During this time, Mr M’Rabti was highly influential in forging successful partnerships with Capital Precision in the shareholder ID services domain, and with Broadridge in bolstering corporate governance.

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