It can be daunting for traders to decide where to invest their money. However, investing in ETFs in Asia can be a lucrative venture with plenty of growth opportunities. This article will review the ten benefits of investing in ETFs in Asia.
ETF trading in Asia
Asia’s ETF market has been multiplying recently, with assets under management rising from $US25 billion in 2010 to over $US600 billion in 2018. Several factors have driven this growth, including the increasing use of ETFs by institutional investors, the launch of new products tracking Asian indexes, and the region’s strong economic performance.
ETFs are now widely traded in Asia, with most trading activity in Hong Kong, Japan, and South Korea. In Hong Kong, ETFs account for around 3% of total stock market turnover, while they account for around 5% in Japan. ETF trading volumes have grown exponentially in South Korea, reaching over $US10 billion per day in 2017. The growth of Asia’s ETF market is likely to continue in the coming years as more investors seek to access the region’s economies through these products.
Reasons to invest in ETFs in Asia
We’ve highlighted the top ten reasons to invest in ETFs in Asia.
1. Diversification: By investing in an ETF that tracks an Asia-based index, investors can instantly get exposure to a large number of companies across different sectors and countries. It helps to reduce the portfolio’s overall risk compared to investing in a single company or sector.
2. Low Cost: ETFs typically have lower expense ratios than traditional mutual funds, making them more cost-effective in gaining exposure to Asian markets.
3. Tax Efficiency: ETFs are generally tax-efficient than traditional mutual funds, generating fewer capital gains. It can be advantageous for investors looking to minimise their tax liability.
4. Liquidity: ETFs trade on major exchanges throughout the day, making them highly liquid and easy to buy and sell. It allows investors to take advantage of changing market conditions more quickly than traditional mutual funds, which typically only trade once per day at the end of the trading session.
5. Transparency: ETFs are traded like stocks on major exchanges, providing greater transparency around their holdings and performance than other investment products. It is excellent for investors who want to regularly monitor their investments progress.
6. Potential for Higher Returns: Although Asian markets do experience downturns from time to time, they do have the potential for higher returns over the long term compared to more mature markets in North America or Europe. Investing in an ETF that tracks an Asian index can help investors capture these potential returns.
7. Exposure to Emerging Markets: Many Asian countries are classified as emerging markets, which tend to be more volatile than developed markets. However, they also offer higher growth potential. By investing in an ETF that tracks an Asian index, investors can get exposure to these emerging markets without investing directly.
8. Flexibility: ETFs offer investors a high degree of flexibility regarding investing their money. For example, investors can purchase ETFs that track specific indexes or sectors or opt for more general Asian-focused ETFs. This flexibility allows investors to tailor their portfolios to their specific investment objectives.
9. Liquidity: As mentioned previously, ETFs generally trade on major exchanges during the trading day, making them highly liquid and easy to purchase and resell. This allows investors to take advantage of changing market conditions more quickly than traditional mutual funds, which typically only trade once per day at the end of the trading session.
10. Diversification: By investing in an ETF that tracks an Asia-based index, investors can instantly get exposure to a large number of companies across different sectors and countries. This helps to reduce overall risk within the portfolio compared to investing solely in a single company or sector.
The last word
Overall, there are many compelling reasons to consider investing in ETFs that track Asian markets. Whether you’re looking for exposure to emerging markets, greater dividend yields, or higher returns in the long term, ETFs can provide a convenient and cost-effective way to achieve your investment goals.