Ranking 1st in Asia
More than 300 exchange-traded funds (ETFs) have been listed on the domestic stock market. The Korea Exchange (KRX) announced its plan to list 500 ETF items and turn it into the global leading market with net assets of 50 trillion won (US$44.42 billion) by 2020.
According to the KRX on August 30, the domestic ETF market now has a total of 302 listed items as 5 new ETF items, including Mirae Asset Global Investments’ “TIGER KOSPI,” were listed on the stock market on the 31st, surpassing the 300 mark in 15 years after the establishment in 2002.
The total amount of net assets increased by more than 80 times to 28.62 trillion won (US$25.43 billion) as of the 28th from 344.4 billion won (US$306 million) at the market opening. The daily average trading values also grew over 70 billion won (US$62.19 million) from 790 billion won (US$701.91 million) last year to 861.5 billion won (US$765.44 million) this year. Accordingly, the South Korean ETF market rank ninth in the world in terms of the number of listed items, following the United States and Germany. It still maintains the number one spot in Asia. The domestic ETF market is on the 10th place in the world in terms of total net assets and fifth in terms of trading values.
As the number of ETFs exceeded 300 on the market, underlying assets have been diversified to 20 types such as currency, mixed asset and raw material as well as the stock index at home and abroad. Investment areas were also dispersed to various regions including global, advanced countries, emerging countries, Europe and Asia, and new strategic products like smart beta appeared. “Active Bond ETF,” which can obtain excess earnings at fund managers’ discretion, was released in June.
As the ETF market is growing, an increasing number of institutions are taking part in. With Korea Post seeing its ETF profit margin rise, the daily average ETF trading values of institutions from January 1 to August 28 stood at 203.1 billion won (US$180.45 million), up 50 billion won (US$44.42 million) from the previous year. In addition, the daily average ETF trading values of the National Pension Service (NPS) since January increased 97 percent on-year to 9.4 billion won (US$8.35 million), while that of banks and insurance companies grew 77 percent and 52 percent, respectively. Recently, financial institutions are developing various ETF indirect investment products for institutional and individual investors, such as the variable insurance using the ETF managed portfolio (EMP) that invests more than 50 percent of portfolio assets in ETFs, the ETF consultation entrusted fund, the banks’ ETF special money in trust and the securities companies’ wrap account.
However, there is still liquidity bias. The domestic ETF market leans too much towards specific items like KOSPI 200 and leveraged and inverse ETFs in terms of liquidity so the trading of numerous items including overseas index, sector and strategy index ETF is slow. The daily average trading volumes of the top 10 items account for 75 percent of the total. There are not enough items over a certain size that can be used by institutional investors. There are only 45 ETFs with more than 100 billion won (US$88.85 million) of net assets, taking up 15 percent of the total items. An official from the KRX said, “We will improve the market environment and relieve the unequal distribution of liquidity by expanding the ETF liquidity provision as well as continuously encourage institutional investors, including the NPS, to participate in the ETF market.”