The Korean ETP market: A rapidly growing landscape
Bloomberg recently convened a thought-provoking forum to explore the opportunities and challenges presented by the Korean Exchange Traded Products (ETPs) market. Kano Kim, Bloomberg Korea’s Head of Index Sales and Relationship Management, facilitated the engaging discussions among a distinguished panel of experts, including Do-hyung Kim, Division Head of Samsung Asset Management; Lee Jong-hun, Manager at Korean Investment Management; and Min-am Cho, Team Leader at Meritz Securities.
The forum began with Kano Kim underscoring the rapid growth of Korea’s domestic ETP market in recent years, positioning it as a particularly active player within the Asian landscape. Min-am Cho further elaborated on the substantial growth potential of this market, revealing that it accounts for less than 10% of stock exchange-traded funds (ETFs) market capitalization when short-term bond monetary funds and short-term interest-type products are excluded.
Growth drivers and product diversity
Do-hyung Kim offered insights into the growth drivers of the domestic ETF market, attributing its expansion to both the global market’s progress and the increased participation of individual and institutional investors. Jong-hun Lee projected the upcoming launch of diverse products tailored to various customer needs, spurred by asset managers’ shift from mutual funds to ETF conversion.
The panelists also engaged in a comprehensive examination of the domestic ETP market’s challenges, with Do-hyung Kim emphasizing the necessity of attracting more individual investors. He also expressed concerns about potential roadblocks to new market entrants and product diversity, posed by biased investments in leveraged and inverse-type products. Min-am Cho identified tax issues as growth inhibitors for the bond-type ETP market, noting the disparity between untaxed capital gains from direct bond investments and taxed ETF investments.
The evolving landscape of overseas bond ETPs
In response to Kano Kim’s query about the Korean market’s cautious approach to overseas bond ETPs, Min-am Cho explained the nascent interest in overseas bond ETFs in Korea, which had led asset managers to allocate resources elsewhere. However, he highlighted the recent surge in overseas bond management capacity and forecasted an upswing in interest for these ETFs. Jong-hun Lee concurred, anticipating a heightened interest in bond ETFs this year due to the unprecedented net buy volume from individual investors and the corresponding increase in transaction volume.
Bloomberg’s ETP-related survey: Insights and trends
Bloomberg conducted an ETP-related survey, uncovering that 37% of respondents viewed ‘Thematic’ ETPs as having the most significant growth potential, followed by ‘Climate or Climate Transition Project-related Product’ (20%), ‘Bond’ (18.5%), ‘Multi-assets’ (18.5%), and ‘Commodities’ (5%). When inquired about the optimal timing for bond investments, 65.6% of non-overseas bond investors expressed affirmative sentiments, while 19.7% disagreed, and 14.8% remained uncertain.
As for the primary challenges confronting ETP issuers in today’s market, 40% of respondents pinpointed the ‘Change in the Regulatory Environment’, followed by ‘Maintaining Product Differentiation’ (27.2%), ‘Biased Property Allocation’ (18%), and ‘Pressure to Reduce Commission’ (13%). To set ETP products apart, 66.6% of respondents advocated for ‘Providing a Unique Investment Theme’ as the most compelling strategy.
Bloomberg
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