Local investors have curbed their appetite for stocks amid roller-coaster-like volatility. But Deutsche Bank is hoping to draw them back into the market by introducing exchange-traded funds (ETFs) as a way of diversifying their exposure to volatility.
More... text / pdf
1 comment:
Exchange-traded funds ‘ideal for volatile market’
Nick Westra and Cheryl Chui Aug 31, 2008
Local investors have curbed their appetite for stocks amid roller-coaster-like volatility. But Deutsche Bank is hoping to draw them back into the market by introducing exchange-traded funds (ETFs) as a way of diversifying their exposure to volatility.
“It’s the ideal market situation or market time when markets go down,” said Thorsten Michalik, head of exchange-traded funds at Deutsche Bank. “People want to start investing, [but] they don’t know which stock to buy [and so they] just go into the entire market.”
Deutsche Bank plans to tap into the relatively underdeveloped Asian ETF market by cross-listing some of its European products as early as next month in Hong Kong and within six months in Singapore and Tokyo.
ETFs trade as stocks but track a designated benchmark such as a stock index or a specified range of commodities. In tough times, they are considered to be more stable investments than individual stocks, since they are exposed to multiple elements rather than having all their eggs in one basket.
But ETFs have not achieved the same popularity in Asia as in other parts of the world. Assets under management in ETF markets in the US were US$584 billion in the first half of this year, compared with just US$64 billion in Asia, according to Deutsche Bank.
Local investors attributed the disparity to a lack of market liquidity and knowledge about the product.
“Compared with Hong Kong, the US and Europe have much bigger turnovers, and therefore many more resources are readily available,” said Francis Lun Sheung-nim, a general manager at Fulbright Securities. “And ETFs are also made for lazy fund investors.”
While the passive product may suit US and European investors, it has not yet been widely accepted among local investors, who are generally more aggressive and short-term-focused.
“Many investors are still sceptical of these forms of investment,” said Ricky Tam Siu-hing, chairman of the Hong Kong Institute of Investors.
Even so, more ETFs have come to the local market lately. Last month, State Street Global Advisors helped launch the SPDR Gold Trust, Hong Kong’s first ETF to track the price of gold.
Mr Michalik said Deutsche Bank would like to build on this trend and eventually introduce a more diversified range of ETFs to the Asian markets, including ones that track money markets, commodities and fixed- income benchmarks.
“We have to make sure that people understand there is now a full product suite around and they can now really construct their full portfolio out of ETFs,” he said. “They will start to use ETFs because the advantages are just too good; in the long run it’s really hard for an active manager to beat the market.”
With 143 ETFs in Asian markets in the first half, Mr Michalik expected that there could be as many as 200 trading in the region by the end of this year.
And the assets under management in Asia’s ETF markets could jump to HK$85 billion by the end of 2010, predicted Raimar Dieckmann, a senior economist at Deutsche Bank.
Meanwhile, Mr Tam did not expect ETFs to become a mainstream investment product in the local market and said investors would need more time to understand how the products fitted their needs.
“We don’t have enough knowledge right now to fully invest in ETFs,” Mr Tam said. “Even though people say it’s `safer’ than other stocks, it really depends on what type of ETF you plan to invest in.”
The Deutsche Bank team themselves admitted that it might take some time for local investors to embrace ETFs as a useful investment tool as their US and European counterparts have done.
“If you talk about when it becomes a success and really a lot of retail investors buy it, you need to have two to three years,” Mr Michalik said. “Because people have to become aware of the product, use and try the product, and you also need to have this educational process.”
Post a Comment