ETFs drive Asia’s growth momentum

Several factors have contributed to ETF inflows. The recent equity market rally has led to strong ETF returns, translating into positive inflows. Diversification is another factor, as allocators look to broaden their portfolio holdings. And product innovation has been an enabler.

Active ETFs, which rather than replicating an index, have a manager making decisions on what assets should be selected for the ETF portfolio, account for about US$40 billion in assets in Asia, up from $11.5 billion in 2017.² Although active ETFs cost more than conventional passive products, they are still highly cost-effective.

Investors can opt for thematic ETFs, which focus on securities linked to a particular theme, allowing greater focus on new or niche trends such as artificial intelligence and semiconductors.¹¹ Leveraged ETFs – which use debt or derivative instruments to magnify the returns of the underlying index or assets – are becoming increasingly popular too.

These influences helped ETFs in the region to grow by 47% last year.³

Nowhere is this more visible than in Mainland China, where the lion’s share of Asia’s ETF inflows is happening. In August 2025, overall assets under management in ETFs on the mainland crossed the RMB5 trillion (approximately USD706 billion) level for the first time⁴.

Having taken 16 years to cross RMB1 trillion and another three to reach RMB2 trillion, it took only four months to move from RMB 4 to 5 trillion.

A similar story is unfolding in Hong Kong SAR, where average daily turnover for exchange-traded-product (ETP) hit HKD37.8billion (approximately USD4.8billion) this year as of end-Sep 2025, a 146% increase year-on-year, making it the world’s third largest ETP market based on turnover.⁵

Key factors are the demand for technology-themed exchange-traded funds and robust flows into eligible ETFs through the Southbound Stock Connect.¹² Elsewhere, in South Korea, ETF AUM is also scaling new heights, topping USD170.3 billion become the fourth largest ETF market in Asia.⁶ In South Korea, ETFs now account for 15.5% of the overall mutual fund market, while active ETFs comprise 33% of the ETF segment, as investors pile into thematic products.⁷

In Taiwan, ETFs are outpacing mutual fund growth. Whereas ETFs made up 47% of Taiwan’s mutual fund market in 2024, this now stands at 65%.⁸ And in Australia, ETFs now look after AUD280.5 billion (approximately USD183billion), a 36.1% year-on-year increase.⁹

Just as Stock Connect is facilitating greater flows towards ETFs in Mainland China and Hong Kong SAR, Asian and Middle East markets are also becoming increasingly interconnected. This too is going to have a net positive impact on ETF flows in both regions.

The corridor between the Middle East and Asia is becoming a key route for trade, investment and travel, and is poised to reshape the global economy in the coming decade. Collaboration between the two regions is only getting stronger.

Cross-border listings between Hong Kong SAR and Saudi Arabia, for example, are being encouraged with the signing of a Memorandum of Understanding between Hong Kong Exchanges and Clearing Limited (HKEX) and the Tadawul, Saudi Arabia’s main stock exchange – and ETFs are primed to be among the key beneficiaries.

The CSOP Saudi Arabia ETF, issued and managed by CSOP Asset Management, was launched in November 2023 as Asia’s first ETF tracking the performance of Saudi Arabian equities. HSBC was the ETF partner in the listing of the fund, and in September 2024, Saudi Arabia, in turn, granted approval to list its first ever Hong Kong-focused ETF - the Albilad CSOP MSCI Hong Kong China Equity ETF.¹⁰

“The Asia-Middle East corridor will help bring more interesting investment themes to Hong Kong SAR, whilst also promoting the Hong Kong SAR market in Saudi Arabia and the wider Gulf Co-operation Council (GCC) region,” says Ding Chen, CEO, CSOP Asset Management.

Assets under management in Asia-based ETFs, whether traditional, active, thematic or leveraged, continues to grow as investors transition from short-term asset allocation strategies, and instead incorporate these products as their core portfolio holdings.

Despite this optimism, the ETF market in Asia is not without challenges. Across any credit cycle, equity markets face risks of overheating, so investors need to be prepared for potential ruptures in the ETF market.

Service provider selection is therefore critical.

Even in the calmest of markets, the ETF creation process can be a complex undertaking. Issuers need to ensure their products align with their strategy and that they are accurately tracking the benchmark, all while providing investors with ample liquidity, adhering to the highest risk management standards, and ensuring regulatory compliance, particularly for any cross-border ETFs.

“Working with a high-calibre service provider is key,” says Oliver Kadhim, Head of Institutional Client Group, Asia, HSBC. “One who can provide an extensive repertoire of services from seeding and synthetic access, through to trustee and custody, on a global scale.”