Celebrating APAC ETF growth

Beverly Chandler, ETF Express, talks to Ahmed Ibrahim, Managing Director, ETF Product, APAC, State Street, about the recent and rapid growth of the ETF in APAC.

This episode is brought to you in partnership with State Street.

Transcript

Beverly Chandler

Hello, my name is Beverly Chandler and I welcome you to our latest Off the Record podcast for ETF Express. I'm here with Ahmed Ibrahim, Managing Director ETF Product APAC, State Street, to talk about the recent and rapid growth of the ETF in APAC. Hi, welcome, Ahmed. And tell me just a little bit about yourself and your role with State Street for the APAC region.

Ahmed Ibrahim

Hi, Beverly. Great to meet you and thanks for the opportunity to discuss the growth of ETFs in APAC. I'm coming up to nineteen years at State Street, nine years working at the State Street Dublin office and in August this year I'll be 10 years at State Street Australia. I've been working on ETFs for just over sixteen years, predominantly in both the operations and ETF servicing side. Earlier this year, I moved into a new role as the head of ETF Solutions in APAC, which allow me to focus on all things ETF related in APAC and not just Australia, which I'm very much looking forward to.

Beverly Chandler

So can you tell me what growth have you seen in the region generally and in ETFs and the drivers behind that growth?

Ahmed Ibrahim

Of course. So overall, we've seen significant growth in APAC region over the last twelve months, especially in the ETF space and private market space. The main contributors to this has been driven by technology and digital innovation, they've no doubt created efficiencies in the APAC market ecosystem. Investing in ETFs has never been easier and it is something that the younger generation are embracing. The availability and scale of data to investors and advisors is contributing to this growth as well. Investors are able to make stronger informed decisions on their investment strategies. We’re also seeing a number of large global investment managers increasing their presence in APAC due to the continued success in ETFs in the region. Their presence in APAC is definitely fuelling competition and innovation. Finally, I would say the easing of regulation across the region with both passive and active ETFs benefiting from this. An example of this is in Japan, where reforms to NISA through tax incentives have attracted investors to invest in investment vehicles such as ETFs. A similar case was seen in China with the expansion of the fund fee reforms, which significantly reduced fees in the ETF marketplace. We're also seeing regulators begin to acknowledge there's a demand for digital ETFs such as Bitcoin and Ethereum, and I'm sure it won't be too long before we see digital ETFs being rolled out in multiple locations in APAC. And not only will they be limited to Bitcoin and Etherium, but other digital currencies such as XRP and Sol.

Beverly Chandler

So there's quite a wide range of growth happening in the market. It's in the products as well as geographically and also regulatory change. Can you talk me through the various markets, the biggest markets for ETFs in the APAC area?

Ahmed Ibrahim

Yeah. Look, there are a number of similarities and clear differentiators between the various ETF markets in APAC. If I look at the top five markets, in no particular order, Taiwan, Japan, Australia, China and South Korea, they're all very much retail driven markets where the vast majority of investments are into passive ETFs. Each of their markets experienced significant growth in 2024 and it looks to continue in 2025. We can see all five of these markets, regulation has again played a key role in the growth of ETFs, which has incentivized investors to increase their investments into ETF strategies. Some key differentiators do exist. For example, South Korea have a bustling active ETF market, compared to other locations in APAC. From a technology point of view, locations such as Japan and Taiwan, it's a requirement for administrators of ETFs to be completed on local systems as opposed to using global service providers’ proprietary systems. This can sometimes limit efficiencies within these marketplaces. Certain ETF funds have been approved in some markets, for example standalone Bitcoin and Etherium funds are live in Australia today and have been for the last you know, number of years. Whereas we are still waiting on the regulator to approve these funds in APAC markets. I believe Japan is close as the investors are looking to hold a crypto ETF as opposed to investing directly themselves.

Beverly Chandler

Interesting. It's interesting the rise of digital as well. You can imagine that that would be a market of great interest to this younger audience you're talking about. Tell me a bit about your home market in Sydney.

Ahmed Ibrahim

Yeah. So look, Australia has been definitely on a big growth trend throughout the early 2020s and into 2024 and it's continuing in 2025. There are a number of new funds been launched since the beginning of this year by various ETF issuers by both passive and active managers. Currently, there are just over four hundred ETFs now listed in Australia, with a current industry value of over 250 billion Aussie dollars. Active ETFs continue to lead the way with positive inflows in the last quarter. We are also still seeing a number of active ETFs being launched on the back of successful unlisted strategies and I expect to see a continuation of global asset managers who run successful ETFs in the US and Europe to launch active ETFs in Australia. Sticking with active ETFs, from a State Street perspective in 2024 we have seen a shift in the strategies active ETF issuers are adopting, with more and more clients looking at external market making as opposed to internal market making. We now see it as fifty-fifty on active issuers adopting the transparent versus the semi-transparent model, whereas four years ago issuers were going down the internal market making, semi-transparent models. The data seems to suggest that the IP of active ETF managers is not as important factor when launching these funds. For the remainder of 2025, I believe we'll continue to see inflows into ETFs, issuers, market makers and service providers will need to work together to standardise the ETF marketplace. I believe that's important as it's currently, in APAC it's a bit fragmented. There should be a focus on using technology to create efficiencies and remove manual processes. At State Street, we recognise we have a crucial role to play in this technology space and are actively rolling out our technology capabilities to the various locations in APAC to streamline our ETF service and offering to our clients and market makers.

Beverly Chandler

And the investors in ETFs in Australia, is it a broad range?

Ahmed Ibrahim

Yes, I suppose in general APAC is very much a retail driven market when it comes to ETFs. I would say given the advancements in technology and digital experience, younger investors throughout APAC are embracing ETFs, no doubt about that. They're using ETFs as part of their long-term savings strategy, which is great to see. In Australia, we're seeing self-managed super funds increasingly using ETFs as part of their investment strategies. I suppose the great thing about ETFs today is that there's more choice than ever before for investors, ETF issuers are embracing the competition and becoming more innovative with their ETF offerings which can only benefit the end investor.

Beverly Chandler

I was thinking about those big Australian supers. If they start to use ETFs the industry will grow rapidly presumably.

Ahmed Ibrahim

Yeah. Look, we're seeing that today. The big Super Funds are investing into ETFs and no doubt that will continue in the coming years.

Beverly Chandler

Thank you to my guest today, Ahmed Ibrahim from State Street and thank you to you for listening. Remember to subscribe and leave a review and feel free to contact us at podcast@chandlerpublishing.com. This has been an Off the Record recording from ETF Express.

Outro

Off the Record is brought to you by ETF Express. Production by Imogen Rostron and Lisa Hynes and music by Otto Balfour. Thank you to our guests on this episode of Off the record from ETF Express and to you for listening. We look forward to you joining us next time.