Asia Pacific ETFs: Volatility up substantially in January

2016. 2. 2 Asia Pacific ETFs Volatility up substantially in January Asian markets highly volatile: Asian Pacific stock markets were quite volatile in January, with the Shanghai and Shenzhen composite indices losing a respective 22% and 25% for the month, while the Hang Seng and HSCEI fell 10% and 14%, respectively. The Nikkei 225 and Singapore STI each lost 8%, while the Kospi and Taiwan TWI fell a respective 3% and 2%. Meanwhile, the Indonesia IDX gained 3% as Thailand SET was largely unchanged (although showing upside bias). Asian currencies continue to lose ground against the US dollar, which has been exacerbated by the Bank of Japan (BOJ) adopting a negative interest rate policy at end-January. ETF asset value declines: ETF assets fell by some USD10b in January, with 50% of that owing to products listed in Tokyo and Hong Kong, driven by currency weakening and capital flight as local markets plunged. Shanghai-listed ETFs, however, saw asset value rise by over KRW2b m-m, which we attribute to bottom fishing amid plunging stock markets and liquidity hikes via reverse repurchase agreement (RRPs) by policy authorities. Volatility-based ETFs perform well: Volatility futures-based ETPs and inverse ETFs (based on stocks and oil prices) have performed best ytd, with Nikkei Volatility Index-based ETNs surging 36%. In addition, amid rising market volatility, gold-based ETFs have showed relative strength. Meanwhile, Australian commodity- and Chinese stock-based ETFs have fared poorly, especially energy- and natural gas-based ones listed in the former down by some 50% last month. Forex-hedging products listed en masse in the US: Dollar strengthening should continue amid expectations of the Fed further normalizing interest rates and economic slowing worsening in other regions. In response, US investors have swarmed toward forex-hedging products, while Asian investors have raised exposure to USD-denominated assets, especially commodity ETFs (to take advantage of price rebounds). Conservative approach: Worldwide stock market collapses seen earlier this year appear to have subsided after the European Central Bank (ECB) and BOJ both re-engaged quantitative easing. Oil prices have also shown a slight technical rebound on expectations of producer nations initiating production-cut discussions. Market volatility seems to be waning, but instability remains, so we recommend staying conservative, in anticipation of: 1) more US rate hikes; 2) China’s economy slowing; 3) the Hong Kong dollar depreciating; and 4) commodity prices becoming more volatile. Investors would do well to raise cash holdings or the liquid asset portion of their portfolios while sticking to a risk parity strategy. ETF News 2016. 2. 2 2 Asia-Pacific ETFs ETF listings Note: As of Jan 29; based on existing ETFs Source: Bloomberg, Samsung Securities ETF listings, by exchange Exchange 2007200820092010201120122013201420152016Australia 14151220101116Bangkok 11115354Hong Kong 3612208291112111Indonesia 11231Korea 5151816442916361084Bursa Malaysia 1121Mumbai 1Ho Chi Minh 111Nagoya 1N.S. India 632872447New Zealand 2Osaka 222612Philippines 1Shanghai 12711618112Shenzhen 61141423Singapore 152242Taiwan 44153443Tokyo 43613187201829Total 258250961271081021101818Note: As of Jan 29; based on existing ETFs Source: Bloomberg, Samsung Securities 76193745203046507255693957454862739880204060801001202H061H072H071H082H081H092H091H102H101H112H111H122H121H132H131H142H141H152H151H16(No. of products) ETF News 2016. 2. 2 3 Asia-Pacific listed ETFs, by asset class Asset class AUM (USDm)Number of ETFsEquity 227,451 765Fixed Income 10,911 82Money Market 5,115 80Commodity 3,101 6Specialty 1,344 67N/a 456 4Mixed Allocation 149 8Total 248,527 1,012 Note: As of Jan 29 Source: Bloomberg, Samsung Securities AUM of ETFs, by exchange and asset class (USDm) CommodityEquityFixed incomeSpecialtyMixed allocationMoney marketTotalASE 375 7,140 1,386 363 9,265 Bangkok 35 95 130 BSE India 154 154 Hanoi 4 4 Ho Chi Minh 15 15 Hong Kong 108 28,937 3,511 55 32,611 Indonesia 150 150 Korea 325 13,627 3,722 750 88 18,512 Malaysia 86 328 414 N.S. India 851 1,451 136 2,439 Nagoya 34 34 New Zealand 614 - - 614 Philippines 27 27 Shanghai 115 21,105 1,137 2,479 24,836 Shenzhen 232 7,437 64 622 8,355 Singapore 1,019 11,830 566 13,415 Taiwan 226 5,963 61 6,250 Tokyo 1,829 128,781 62 175 456 131,303 Total 5,115 227,451 10,911 1,344 605 3,101 248,527 ETF News 2016. 2. 2 4 AUM of listed ETFs, by exchange Primary exchange TotalAveragePrevious month-end (USDm) (USDm)(USDm)Tokyo 131,303 742 136,089 Hong Kong 32,611 291 37,694 Shanghai 24,836 345 22,823 Korea 18,512 92 18,432 Singapore 13,415 395 14,902 Shenzhen 9,265 96 9,717 Australia 8,355 186 8,216 Taiwan 6,250 164 6,491 N.S. India