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Saturday, July 13, 2013

Asian ETFs set to continue growing strongly this year

Published on Jul 13, 2013

Exchange-traded funds are an increasingly popular investment for those looking to buy into a basket of stocks, bonds or commodities. This is the latest of a fortnightly series that introduces and discusses this asset class.

THE Asian exchange-traded (ETF) fund market is expected to chalk up robust growth this year.
This is shown by the figures of assets under management for Asian ETFs. These grew by around 50 per cent last year and growth is expected to continue this year.

Asian ETF markets still take up a relatively smaller portion globally compared to US and Europe, according to Deutsche Asset & Wealth Management. It expects to see this gap narrow as more investors get familiar with ETFs.

More than 90 per cent of Asian ETF investors mainly focus on equity products.

This means that there is a large potential for investors to look at other asset classes such as fixed income and commodity.

Six of the 10 fastest-growing ETFs launched last year were linked to Asian stock markets.

A recent survey on trends in Asian ETF markets conducted by Asia Risk and Deutsche Bank showed that 65 per cent of respondents planned to increase their ETF investment.

Fixed-income ETFs
Within the equity ETF market, fixed-income ETFs are relatively small, accounting for less than 10 per cent of the market share by assets under management or by product.

Those in the former category are also small in Asia as well, compared with the US and Europe.

However, more investors may look towards fixed-income ETFs for generating relatively high returns with lower volatility.

Like any listed stocks, investors can trade ETFs on SGX via brokers or brokers' online trading platforms.

The minimum sum would depend on the board-lot size and price of the ETFs. Board-lot size can vary from five, 10, 100 to 1,000 units and prices range from less than $1 to more than $200.

An example of a fixed-income ETF is one that tracks the Markit iBoxx ABF Indonesia Government Index, which covers sovereign Indonesia debt issued in domestic currency by the Indonesian central government.

The DB Xtrackers II Market iBoxx ABF Indonesia Government UCITs ETF was listed on Wednesday.

The minimum investment, excluding transaction cost, is about US$120 (S$152). This is relatively cost-efficient as investment in fixed-income instruments usually requires a high minimum investment amount.

All new ETFs listed on SGX must have a designated market maker to provide bid/offer liquidity during the Singapore trading hours, irrespective of turnover. This is to ensure that investors can get in and out of the market at any time during market hours.

Wednesday's listing brings the total fixed-income ETFs that SGX currently has to 12, offering the most diverse Asian ETF platform in this region, said its market strategist Geoff Howie.

This is a series brought to you by Singapore Exchange.

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