China’s ETF market experienced a banner year in 2020 and is poised for further rapid growth over the next 12 months, according to research from Brown Brothers Harriman (BBH).
Chris Pigott, Senior Vice President and Head of ETFs in Asia at Brown Brothers Harriman.
The ETF custodian and administrator recently released its fourth annual Greater China ETF Investor Survey which measured the expectations and preferences of 146 ETF investors in mainland China, Hong Kong, and Taiwan.
Institutional investors represented over half (58%) of the survey’s respondents while financial advisers and fund managers each made up roughly one-fifth. Three-quarters (76%) of those interviewed manage more than $100 million in assets while over half (56%) currently invest over a quarter of their portfolio in ETFs.
Despite the disruption and volatility caused by the Covid-19 pandemic, China’s ETF market still recorded robust growth in 2020, representing over $270 billion in total ETF assets across the region at the end of the year.
BBH credits the sustained development of China’s ETF market to educational efforts around the structural benefits of the ETF wrapper, the commitment from regional regulators and stock exchanges to develop ETF infrastructure, and the creation of new innovative ETF strategies.
Appetite for ETFs in Greater China is also at its highest level ever recorded with over three-quarters (76%) of those surveyed expecting to increase their allocation to ETFs over the next year.
Mainland China appears poised for the greatest growth in ETF adoption with 92% of investors indicating that they plan to increase their allocation to ETFs, up from 82% in 2020. Demand also remains strong in Hong Kong and Taiwan where 66% and 58% of investors, respectively, plan to grow their ETF allocations over the next year.
Chris Pigott, Senior Vice President and Head of ETFs in Asia at Brown Brothers Harriman, said: “The enthusiasm for ETFs among Greater China investors continues to pick up momentum. And as ETFs command a greater role in their portfolios, investors are naturally turning to more nuanced ETF types, whether that be ESG, active, fixed income, or thematic ETFs, to capitalize on opportunities or mitigate risk.”
ESG-focused ETFs have captured the attention of Greater China investors with 92% planning to allocate more capital to these strategies in 2021 and over half (53%) expecting to have at least 11% of their portfolio in ESG ETFs within five years.
ESG was top of the list for both mainland and Taiwan investors when asked what type of ETF strategies they would like to see more of in the market, while these sustainable strategies ranked third for Hong Kong investors.
Concerns around the performance of ESG strategies remain the biggest obstacle to the adoption of ESG-focused ETFs, however, with between 41-46% of investors across the Greater China region citing this as a limiting factor.
Thematic ETFs, meanwhile, are also drawing significant interest with 91% of mainland investors, 86% of Hong Kong investors, and 74% of Taiwan investors looking to increase their allocations to thematic strategies this year.
A vast majority (83%) of investors from mainland China predict they will be allocating more than 10% of their portfolio to thematic ETFs within five years, while expected demand was slightly less intense in Hong Kong (59% of investors) and Taiwan (49%).
Technology-focused thematic ETFs command the most interest from ETF investors, although other areas worth noting include robotics, artificial intelligence, and electric vehicles.
Pigott added: “Thematic ETFs have been a success story in the region as investors have utilized these products as an access vehicle to gain exposure to megatrends that are driving global economic growth. Aligned with the survey findings, we foresee continued product manufacturing in this space to meet the increasing investor demand.”
Given considerable gains in the value of digital assets during 2020, it is perhaps not surprising that many investors in Greater China are gravitating towards the idea of crypto ETFs which ranked second across the region for product development demand.