The Taiwan Stock Exchange and South Korean Stock Exchange have today signed a memorandum of understanding which seeks to enhance business between the two groups. The most notable highlight within the document is an agreement to work toward integration of both countries’ exchange-traded fund markets. Other goals include future collaboration on the construction of indices, jointly led market promotion activities, and the establishment of regular bilateral visits to promote sharing of knowledge.
The Memorandum of Understanding will seek to cross-list ETFs trading on the stock exchanges of Taiwan (pictured) and South Korea.
Lee Sush-der, chair of the Taiwan exchange, commented: “By focusing on indices and ETFs, this partnership will take advantage of the flourishing investment trend of global indexing. ETFs that track the Korean equity market will soon be available in Taiwan, and similarly, we expect ETFs that track the Taiwanese equity market will be launched on the Korean market in the future.”
Choi Kyungsoo, chair and CEO of Korean exchange, added “Taiwan and [South] Korea are both ‘Asian Tiger’ economies. Not only do both markets share similar social, economic and cultural development experiences, the industrial structure of both markets also resembles each other.”
Steps to integrate the two exchanges will boost the liquidity of each countries’ listed ETFs by broadening the investor base for those funds. Local investors also benefit through a broader choice of investment, adding diversification benefits to their portfolios.
Both countries have registered significant growth of their ETF markets in recent years, both in the number of products offered as well as total value traded on exchange. These trends are likely to accelerate following the introduction of measures stated within the memorandum.
In Taiwan, on-exchange trading volumes for ETFs between January and November 2015 has exceeded NTD 1.4tn (equivalent to roughly $44.7bn) or 7.1% of the exchange’s total trading volume. This figure is significantly above the 1.8% of total trading volume that the exchange posted over the same period last year. The pace of fund launches has also accelerated and more recently have included ETFs tracking international exposures in a range of asset classes, highlighting the development of the market.
The market in South Korea has grown to over 200 ETFs since the first fund debuted there in 2002. The total size of ETF assets recently reached a record high of KRW 21tn ($17.7bn). The market has been able to gather pace through initiatives introduced by Korean financial authorities which aim to decrease regulation surrounding the listing and management of ETFs.