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Cerulli: Asia's fund industry prepares for post-pandemic recovery

Tuesday, January 12, 2021
Opalesque Industry Update - Although markets throughout Asia were dislocated by the COVID-19 pandemic in the early part of last year, assets under management recovered sufficiently by September 2020 to chart a combined 11.0% growth over the first nine months. This was largely led by China, at 21.0%, followed by South Korea's 10.4%.

China looks to be a bright spot in the post-pandemic recovery, boosted by its various liberalization measures and opening to foreign players, but there are areas of growth opportunity elsewhere in the region. Lockdowns in cities have driven more individuals towards thinking about their personal investments and investing online. In Japan, the number of securities accounts in brokerage houses rose between April and September, especially for online players such as SBI Securities, which had the largest year-on-year growth in the number of accounts, at 20%, as of September.

Responsible investing is picking up in several markets, as heightened awareness of climate change and COVID-19 spur investors to consider environmental, social, and governance (ESG) aspects in their portfolios, even if retail interest generally remains low. In Korea, severe landslides and floods last summer and the coronavirus pandemic could have raised investors' awareness and helped contribute more than US$170 million of inflows to ESG funds in the third quarter.

Regulatory support for ESG is strong in Hong Kong and Singapore. For example, the Securities and Futures Commission of Hong Kong launched consultations last October for fund managers to incorporate climate risks in investment processes, risk management, and disclosures to investors. In November 2020, the Monetary Authority of Singapore (MAS) unveiled the Green Finance Action Plan, which included a US$2 billion green investment program and proposed environment risk guidelines for the financial sector.

Beyond ESG, regulatory measures in several markets are expected to support the asset management industry. The Korea New Deal, launched last July, could spur fund launches that are linked to it, such as those that invest in technology, data, and green-related industries. In Taiwan, increased trailer fees and reduced management fees have prompted the regulator to review the rules on managers' business operations. The pilot scheme of the Greater Bay Area Wealth Management Connect, introduced last July in Hong Kong, is expected to open doors for managers to access the large Chinese retail client pool. The MAS, meanwhile, has launched grants for the Variable Capital Companies framework, which aims to provide managers with operational flexibility and cost savings.

"Investor sentiments will likely remain conservative in 2021, amid the continued risks posed by COVID-19," said Ken Yap, managing director, Asia, at Cerulli Associates. "However, the outlook for the region looks promising, given the recent rebound in assets, as well as solid regulatory backing for growth in the industry."

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