Panel: ETF 2.0: Portfolio, process, platform, at The Asset 3rd ETF Asia Summit in Taipei.

While the ETF market in Asia has grown in Taiwan, Korea and Japan, challenges relating to cost, regulations and a lack of trading activity still remain, according to experts at The Asset 3rd ETF Asia Summit in Taiwan.

Initially used as an instrument for diversification, panellists agree that ETFs are transforming into a tool for liquidity and cost management. However, compared to ETFs in Western markets, such as the US and Europe, Asian ETFs still have higher fees.

“ETFs are way more expensive in Asia versus the US and Europe. That is a hindrance,” shares Antoine de Saint Vaulry, director, head of ETF & flow trading, Asia-Pacific at Commerzbank. Reggie Chen, head of product and advisory, private banking group at Cathay United Bank, agrees: “Passive investment in the US market is hard to beat versus mutual funds. Cost is always a concern for the Asian clients.”

Panellists also cited regional regulatory policy diversion as an additional hurdle. “We have a fragmented and difficult regulatory environment. A lot still needs to be done,” adds de Saint Vaulry.

Another challenge is a lack of trading volume in Asia. “An ETF can be very liquid but does not trade,” observes de Saint Vaulry. “Assets under management are not our only consideration. It's the daily trading volume of the ETF,” says Chen.

“From our point of view, there are markets in Asia where the ETF providers have exhausted their domestic options and are looking overseas,” adds Steve Mantle, offshore fundraising director at VietFund Management.

This article features commentary from The Asset 3rd ETF Asia Summit in Taiwan. Click here to catch up on the event.