East Asian Onshore Markets To See Most AUM Growth

The Asian region has a large and growing middle class population with a low penetration of managed products at 5% of total financial assets on average compared with 15% in western countries.

During the past few years, growth has been higher in Indonesia, Malaysia and Thailand and in the institutional segment compared with Singapore, Hong Kong, Taiwan and Korea. Unlike other countries in emerging Asia, China has suffered from its equity focus in a five-year bear market and an under-developed debt market until recently. Nevertheless, Fitch believes that a stabilisation/rise in equity markets and recent regulatory initiatives to expand Chinese capital markets will allow the gap to be closed in the next few years.

"East Asia represents a growth opportunity for international asset managers but distribution in the region is not straightforward," says Aymeric Poizot, Managing Director in Fitch’s Fund and Asset Manager Rating Group. "The cross-border wealth management and institutional segments are very competitive, while in retail, large consumer banks dominate distribution in most countries -making distribution agreements critical."

Historically, foreign funds have been distributed in Singapore, Hong Kong, Korea and Taiwan, notably through private banks, wealth managers or financial advisors. As hubs, Hong Kong and Singapore account for USD2trn of offshore funds’ assets under management (AUM), largely consisting of European UCITS funds whose number has grown to reach around 6,000 funds in 2012.

China and Korea dominate the USD1trn domestic onshore market in East Asia but emerging Asia already accounts for 15% of the region’s onshore AUM and continues to grow fast.

"Domestic funds exhibit a bias towards core fixed income products and 2012 flows have continued to favour bond and money market funds. Multi-asset and internationally exposed funds are likely to attract growing flows in the coming years in Asia as in other regions, as they offer more diversification," adds Mr. Poizot.

East Asia is also characterised by a large but concentrated institutional market, consisting of large pension, provident or sovereign wealth funds, often regarded as sophisticated by international asset managers. These institutional investors have built diversified portfolios, with total assets of about USD2.5trn.

While Asian authorities have started to discuss a regional passport for funds, similar to UCITS in Europe, the most promising development resides in renminbi-denominated funds, managed out of Taiwan, Singapore or Hong Kong.