What Lies Ahead For ETFs In Asia

Over the past month, the U.S. stock market has held its ground and shot off a nice rally, but what lies ahead for exchange traded funds (ETFs) and the markets in Asia?

Those who follow Asian markets know that Japan is the big dog when it comes to ETF products. In fact, some believe that there is too much overlap between products offered on the Tokyo Stock Exchange.

For example, there are three ETFs that track that the Nikkei and three ETFs that track the Topix.  Japan is somewhat of a complex place.  It is very difficult to cross-list ETFs in Japan, states Paul Hoff, managing director of FTSE for the Asia-Pacific markets, in an interview with Rita Raagas De Ramos of Asian Investor.  For this reason, FTSE is introducing the first theme-based ETF in Japan.

In regard to other regions of Asia, FTSE will be introducing a new thematic ETF in Malaysia on plantations.  This will be launched on FTSE’s custom index that it launched for Malaysia.  China will be an interesting market to keep an eye on as well.  The Shanghai Stock Exchange has a nice initiative to get foreign ETFs listed on the domestic market.

Taiwan has recently opened up a whole new can of competition for ETFs opening to its doors to ETF providers, which was once exclusive to FTSE.  This enables many investors to have several ETF options and a diversified portfolio.

One problem that is systemic in Asia is the regulations that stem across borders.  In some nations, the regulations make it lax for ETFs to launch, such as Singapore and Malaysia.  In others, there are a lot of challenges, such as in Taiwan and the Philippines.

A second problem that arises in Asia is the difference in time zones in which the stock exchanges trade.  The Association of Southeast Asian Nations (ASEAN) is trying to alleviate this predicament by establishing an ASEAN board where investors from different countries can invest across each of the markets.  This will be tough to get running, though. One major problem that investors will have to overcome is the limitation of funds that can be invested outside of  his home country, which is a regulation imposed by the majority of Asian nations.

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