At the close of 2009, forty-four Asian exchange-traded funds (“ETF”) were listed on the Stock Exchange of Hong Kong. In the first five months of 2010, this number has grown to sixty-two, an increase of over thirty percent. This drastic increase is representative of the robust momentum and growth potential of the ETF market. Factors such as convenience, cost effectiveness, liquidity, flexibility and transparency have driven the growth of ETFs. Although there has been robust growth, the Asian ETF market still lags behind those in the EU and the United States. However, considering the overall growth potential, global ETF managers would be well served to review their Asian strategy as part of their global expansion plans.
In order to gain access to the Hong-Kong market an ETF must apply to the Hong Kong Securities and Futures Commission. This process takes approximately four months. After authorization from the SEHK, an applicant must apply to the SFC. In considering applications, the SFC will analyze both the underlying index and the competency of ETF managers. “With its high turnover, large market size and geographic location, Hong-Kong appears to be the hub for expansion into the region,” said Edward E. Lehman, Managing Director of Lehman, Lee & Xu.