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Financial markets may have languished in most parts of the world in 2022, but ETF asset growth is on track in some countries despite the headwinds of plunging valuations.
This resilience is proof of the growing adoption of ETFs around the world. Especially in some emerging market countries, where he is lagging behind developed countries, not only is ETF adoption increasing, but there is also some resistance in the financial markets themselves.
Morningstar Direct data shows Chile, India, Mexico and (just) South Korea are down year-over-year in ETF assets, despite a 7.6% decline in global ETF assets from $10.3 at the end of November. It was on track to record growth. Trillion to $9.5 trillion, according to consultancy ETFGI.
In some cases, the decline has become even steeper. Assets in Swedish-listed ETFs fell 36.3% to $6.3 billion in the first 11 months of 2022, according to Morningstar, while the MSCI Swedish Stock Index plunged 27.3% in dollar terms.
Colombia’s ETF market contracted 31% to $1.4bn, while the stock market fell 12.4% in dollar terms, resulting in worsening net inflows, while Indonesia’s smaller market shrank further, to 26.7% thanks to net outflows. % reduced to $358 million. — even though the stock market rose his 9.1%.
Among the larger markets, US-listed ETF assets fell 6.4% to $6.8 trillion, Irish-listed ETFs fell 7.7% to $964 billion, and Japanese ETFs fell 17.9% to $446 billion, according to Morningstar. It has become. His Luxembourg-listed ETF he shrunk 16.7% to $281 billion, and Canada he shrunk 7.1% to $254 billion.
But there has been some growth in the industry, perhaps mostly in India, where ETF assets have grown 11.4% this year to $60.6 billion, while the stock market has suffered a modest loss in dollar terms.
Deborah Fuhr, Managing Partner and Founder of ETFGI said: “There has been a real awakening in terms of the growth of index products tracking the Nifty 50. [equity] index. “
Kenneth Lamont, Senior Fund Analyst for Passive Strategies at Morningstar, said India is one of the most “interesting” ETF industry growth stories, with at least 15 ETFs in both stocks and bonds so far this year. It said it has received more than $100,000 in net inflows. .
“We are behind the competition, but we are catching up,” said an official at NSE Index, a subsidiary of the National Stock Exchange of India. “Index funds as a concept are very popular and growing in India.”
According to Morningstar, the country’s ETF assets have more than doubled since December 2017, when it was just $12.2 billion, making it the second fastest growing country in the world after Chile.
The official said despite the launch of the first Indian ETFs in 2001, the industry experienced rapid growth in 2015 when total equity and bond ETF assets were “negligible” at $1 billion. said it started.
That year, the Employee Provident Fund Organization, which manages India’s compulsory pension fund, began pouring 5% of its additional investment into equity ETFs tracking the Nifty 50 and Sensex 30 indices. This later tripled to 15%.
“That was what drove the ETF industry to take off,” the official said. “Once they started investing, the industry grew exponentially and retail investors started investing in passive funds as well.”
According to Indian Mutual Fund Association data collated by NSE Indices, there are currently 294 passive funds in India, up from just 84 in March 2017, and this segment now accounts for about 30% of the fund industry’s total assets. 15%.
Exchange-collated AMFI data showed 16.3 million investor “folios” and 3.1 million passive mutual funds, including ETFs, from 1.3 million and 3 million, respectively, in March 2019. increase.
“People are switching from active funds to passive funds because most of the active funds, especially in the large-cap category, find it difficult to outperform the underlying index,” the official said.
Other major success stories have taken place in parts of Latin America. Chile has had the biggest wealth gain of any country tracked by Morningstar this year, with AUM up 21% to his $4.1 billion.
Net inflows were a solid $919 million, part of 2021’s $3.2 billion, but the second highest on record. Meanwhile, a 22.4% rise in the dollar-denominated MSCI Chile index will support domestic stock market investments.
Mexico was another bright spot, with net inflows combined with a slight rally in the stock market to boost wealth by 8.2% to $6.1 billion.
Mr Lamont emphasized that these markets remain small, and in the case of Chile, most of the inflow was absorbed by a single fund, Singular Global Corporates, which invests in globally issued dollar-denominated bonds. did.
But data based on each ETF’s primary listings won’t be able to fully capture the dynamics of Latin American markets, Lamont said.
Hector McNeil, co-founder and CEO of HANetf, has cross-listed more than 20 ETFs in Mexico, alongside other ETFs such as Chile and Peru. US Treasuries hedged back to
Further, McNeil said European-listed ETFs based on the African continent’s Ucits fund structure offer more tax savings than U.S.-listed ETFs, which typically charge withholding tax, or direct holdings of Mexican government bonds.
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