September 21, 2023

The Korean ETP market: A quickly rising panorama

Bloomberg lately convened a thought-provoking discussion board to discover the alternatives and challenges introduced by the Korean Alternate Traded Merchandise (ETPs) market. Kano Kim, Bloomberg Korea’s Head of Index Gross sales and Relationship Administration, facilitated the partaking discussions amongst a distinguished panel of consultants, together with Do-hyung Kim, Division Head of Samsung Asset Administration; Lee Jong-hun, Supervisor at Korean Funding Administration; and Min-am Cho, Group Chief at Meritz Securities.

The discussion board started with Kano Kim underscoring the fast development of Korea’s home ETP market in recent times, positioning it as a very energetic participant throughout the Asian panorama. Min-am Cho additional elaborated on the substantial development potential of this market, revealing that it accounts for lower than 10% of inventory exchange-traded funds (ETFs) market capitalization when short-term bond financial funds and short-term interest-type merchandise are excluded.

Development drivers and product range

Do-hyung Kim supplied insights into the expansion drivers of the home ETF market, attributing its growth to each the worldwide market’s progress and the elevated participation of particular person and institutional traders. Jong-hun Lee projected the upcoming launch of numerous merchandise tailor-made to varied buyer wants, spurred by asset managers’ shift from mutual funds to ETF conversion.

The panelists additionally engaged in a complete examination of the home ETP market’s challenges, with Do-hyung Kim emphasizing the need of attracting extra particular person traders. He additionally expressed considerations about potential roadblocks to new market entrants and product range, posed by biased investments in leveraged and inverse-type merchandise. Min-am Cho recognized tax points as development inhibitors for the bond-type ETP market, noting the disparity between untaxed capital positive factors from direct bond investments and taxed ETF investments.

The evolving panorama of abroad bond ETPs

In response to Kano Kim’s question concerning the Korean market’s cautious method to abroad bond ETPs, Min-am Cho defined the nascent curiosity in abroad bond ETFs in Korea, which had led asset managers to allocate assets elsewhere. Nonetheless, he highlighted the current surge in abroad bond administration capability and forecasted an upswing in curiosity for these ETFs. Jong-hun Lee concurred, anticipating a heightened curiosity in bond ETFs this yr as a result of unprecedented internet purchase quantity from particular person traders and the corresponding enhance in transaction quantity.

Bloomberg’s ETP-related survey: Insights and traits

Bloomberg carried out an ETP-related survey, uncovering that 37% of respondents considered ‘Thematic’ ETPs as having essentially the most important development potential, adopted by ‘Local weather or Local weather Transition Challenge-related Product’ (20%), ‘Bond’ (18.5%), ‘Multi-assets’ (18.5%), and ‘Commodities’ (5%). When inquired concerning the optimum timing for bond investments, 65.6% of non-overseas bond traders expressed affirmative sentiments, whereas 19.7% disagreed, and 14.8% remained unsure.

As for the first challenges confronting ETP issuers in right now’s market, 40% of respondents pinpointed the ‘Change within the Regulatory Surroundings’, adopted by ‘Sustaining Product Differentiation’ (27.2%), ‘Biased Property Allocation’ (18%), and ‘Stress to Scale back Fee’ (13%). To set ETP merchandise aside, 66.6% of respondents advocated for ‘Offering a Distinctive Funding Theme’ as essentially the most compelling technique.