April 20, 2024

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(123rf)

The exchange traded fund market in South Korea is soon expected to expand in size along with the government’s move to ease regulations regarding actively managed ETFs, a report showed on May 31.

As the Korea Exchange has allowed the listing of active ETFs since August, eight new related products were launched on the nation’s main bourse Kospi on Tuesday. Previously, only bond ETFs could be listed on the local stock market, according to Korea Investment & Securities strategist Seo Se-hi.

In addition to the three existing products launched last year, Korea now has 11 active ETFs tracking listed equities. They are managed by four asset management firms -- Mirae Asset Global Investments, Samsung Asset Management, Timefolio Asset Management and Korea Investment Management.

The combined net asset value of homegrown ETFs surpassed the 60 trillion-won ($53.94 billion) mark for the first time as of May 24, nearly 174 times from the figure marked in first year of launching ETF market in 2002 with 344.4 billion won, the KRX data showed.

The local ETF market has increased its size over the nearly 20 years but the growth pace was much slower compared to the US market, where over 220 active ETFs have been launched in that time.

This is due to various regulations on active ETF products, the market watcher wrote in a report.

“Korea’s stock-based active ETFs are required to maintain their correlation coefficients with related indices at 0.7 -- meaning that it would be difficult for fund managers to generate greater earnings,” the report read. “They are further at the risk of exposing management strategies and early buy-ins since disclosing portfolio deposit files on a daily basis is mandatory as well.”

But Seo said the financial authorities upcoming review on loosening regulations on active ETFs indicated a rosy outlook for the homegrown ETF market.

“Asset management companies’ self-indexing would bring a positive impact on the active ETF market’s growth. Along with the recent change in alleviating requirements for index providers to ETFs, newly listing (ETF) products are forecast to generate profits much easily from the rest of 30 percent of the assets,” she said.

By Jie Ye-eun (yeeun@heraldcorp.com)