ETF gaining popularity
Korea Exchange (KRX) CEO Kim Bong-soo, second from left in the front row, applauds with other executives and guests during the 10th anniversary of the Exchange Traded Fund (ETF) at the bourse’s building in Yeouido, Seoul on Oct. 12 in 2012. / Courtesy of KRX
By Kim Tae-jong
The nation’s exchange traded fund (ETF) market has been growing significantly with the fund providing small and institutional investors with risk-hedging tools alongside the volatile stock market of recent years.
The nation’s main bourse operator last year celebrated the 10th anniversary of the opening of its ETF market and pledged to foster the local ETF market to become the world’s seventh-largest by 2020.
An ETF is an investment fund traded on stock exchanges with most ETFs tracking a stock index.
According to the Korea Exchange (KRX), the net asset value of ETFs has grown about 40-fold from that of 2002, when the fund was launched here.
The net asset value jumped to 13.4 trillion won in 2012 from 340 billion won in 2002. The number of ETF products increased to 129 from 4 in the same period, allowing investors to enjoy more options, while the number of ETF accounts soared to about 380,000 from 10,000.
The daily trading volume of ETFs reached 550 billion won in 2012, growing 17-fold from 33 billion won 10 years before
Thanks to its rapid success, Seoul ranked 10th in the world’s ETF market last year in terms of net asset value and fourth in Asia, following Japan, Hong Kong and China.
In 2013, the KRX expects more ETF products will debut and institutional investors will increase their participation in the market, providing more momentum to the growth of the local ETF market.
On average, the ETF market posted a 45.6 percent growth rate, and the net asset value is expected to jump to 18 trillion won by 2013 and 30 trillion won by 2015.
Market insiders attribute the popularity of local ETFs and the booming market to the bourse’s infrastructure and trading system.
“The local ETF market has excellent infrastructure. Its transaction system is better than other countries and the government’s regulations are also market-friendly,” an analyst said.
“The local ETF market focusing on the KOSPI 200 Index has been saturated,” a KRX official said. “For the further growth of the local ETF market, we need to develop more creative products.”
To that end, the bourse operator will encourage asset management firms to develop more ETF products.
Market insiders demand more investment options be offered as a few ETF products dominate the market. For example, Leverage ETF and Inverse ETF jointly accounted for 71.5 percent in the market as of 2012.
The KRX is also considers cross-listing treasury bonds and other ETF products between Korea and other Asian markets such as Hong Kong and Japan, as foreign investment banks and investors have expressed keen interest in bond investment in Korea through the ETFs.
The KRX said it will strengthen protective measures for investors, as various new ETF products debut and bring new risks.