Growth in the region is closely aligned with Mainland China, which presents a significant opportunity as the onshore asset management industry continues to mature and internationalize. Known as the world’s bridge to Mainland China, Hong Kong is well positioned to capitalize on this growth, while Taiwan has been one of the fastest growing ETF markets across Asia with a high level of product innovation.

As evident in the responses, ETF adoption and usage are at varying stages across Greater China. Investors in each market also have distinct views on key criteria for selecting ETFs. In the Mainland and Taiwan, historical performance was the most important factor for ETF selection. While in Hong Kong, investors focused on trading volume, noting how historical performance impacted their product choice.

2020 was a banner year for ETFs in the region. The market now represents a $270 billion industry and is showing no signs of slowing.¹ This global growth is all the more impressive considering that close to a year ago, the market experienced one of the most volatile periods in recent history as the economic impacts of the pandemic took effect. Ongoing education efforts across Greater China around the structural benefits of the ETF wrapper seem to be resonating as investors are increasingly bullish on the products. 76% of investors in the region expect to increase their allocation to ETFs in the next 12 months.

Interest in thematic ETFs has grown significantly in recent years. Strong performance and widespread media attention of several prominent thematic ETFs helped fuel demand in 2020. We don’t see that interest waning, especially in Mainland China. 91% of Mainland ETF investors said they plan on increasing exposure to thematic ETFs this year. Technology-focused thematic ETFs command the most interest from ETF investors, but there were other areas worth noting, including robotics/AI and electric vehicles. Often these ETF strategies are seen as ways to tap into long-term changes in various sectors and demographics, and while they are typically very concentrated, investors appear to be using them more widely.

Given the considerable gains in the value of digital assets throughout 2020, it is not surprising that many investors are gravitating toward fintech/crypto ETFs. Advances in the digital asset ecosystem, and increasing investment in these underlying currencies by hedge funds and corporate entities, may see ETFs targeting this market as a leading edge of broader digital asset adoption.

The Mainland market was one of the top performing equity markets globally in 2020 as it rebounded from the pandemic prior to the rest of the world. Last year, investors continued their trend of increasing allocations to the Mainland equity and bond markets. 86% of global respondents planned to increase their allocations to the China equity and bond markets in 2021 and the majority expected to use ETFs to facilitate their investment. China thematic ETFs were frequently noted by the survey respondents with 50% of global investors planning to allocate to these products in 2021.

As the ETF industry awaits further clarity on the potential for ETFs to be included in the Stock Connect program, Mainland investors aren’t slowing down their interest in accessing the Hong Kong market through other available channels. If provided the future ability to buy Hong Kong listed ETFs, Mainland investors were most interested in managed risk/low volatility products as well as leveraged/inverse ETFs. Emerging market equity and short duration fixed income were the two asset classes most demanded by the respondents.

Although ESG is clearly a growing investment theme, thematic ETF statistics do not include funds devoted to strategies that rely on environmental, social, and governance (ESG) criteria for choosing the equities, yet ESG ETFs also attracted significant new assets in 2020. Globally, a record $89 billion flowed into ESG ETFs in 2020, well above the $28 billion of flows in 2019². In Greater China, policy makers are enhacing regulations to further integrate climate related risks into fund mangers’ investment management and risk processes. Disclosures are being enhanced, which will result in more data being available.

In terms of locally listed products, there is increasing interest from issuers to bring ESG ETFs to the regional market.

While there are headwinds, the ESG segment is clearly gaining momentum, particularly in Greater China. Across all three markets, there is a pronounced uptick in interest in ESG products.  

Actively managed ETFs are not a new phenomenon in the global ETF market, but the concept is relatively new in Greater China. They’ve been in play for over a decade and now account for about 2.9% of global ETF market share or $303 billion in asset under management (AUM)³. What’s different now is the introduction of new structures through which active managers can deliver their investment strategies. It stands to reason that the segment will grow: Across geographies, there was a pronounced uptick in surveyed investors’ planned allocations to active ETFs.

Australian investors have been an early adopter with active ETFs accounting for 50% of net new flows in 2020, while in Hong Kong, issuers continued to add new active ETFs to their platforms. Similar to Europe and the U.S., transparency continues to be top of mind for active asset managers who are assessing these products. Finally, Defined Outcome (buffered ETFs) is an area to watch. The products surged in popularity in the U.S. in 2020 and caught the attention of managers and investors globally. These type of products will likely be a basis for additional innovation in the ETF market, especially in how active management is deployed in the ETF wrapper.