Asia Pacific ETFs:4Q preview-Building a portfolio with focus on risk control

2015. 10. 1 Asia Pacific ETFs: 4Q preview Building a portfolio with focus on risk control Fallout from increased volatility globally: In September, most stock markets in the Asia Pacific region put in weak performances, weighed on by a rise in market volatility globally due to G2-related risks. Only the Korean and Taiwanese markets achieved technical rebounds, posting returns of 1.1% and 0.1%, respectively—the highest in the region. In contrast, the Japanese and Chinese markets continued their months-long runs of poor performances—the Nikkei 225 lost 7.9%, extending August’s 8.2% decline, while China’s Shanghai and HSCEI indices fell 12.5% and 12%, losing ground for a third and fourth straight month, respectively. Markets in Indonesia, the Philippines, Thailand, and Australia were weak, while those in India and Malaysia held up relatively well. ETF assets decline again: ETF assets dipped m-m in most markets, but not China or Korea. However, given question marks over data from China, Korea is the only market that certainly saw a rise in ETF assets. Still, as that rise is largely attributable to the listing of new ETNs, we can say that no market that saw real growth in ETF assets. Hong Kong saw massive capital outflows from mainland China ETFs, Japan from benchmark index ETFs, and Singapore from ETFs tracking Asia stock markets—all of the outflows owe to stock market weakness in Asia. Trading contracts: The Shanghai ETF market saw three-month average daily trading value fall from USD880m at end-August to USD640m at end-September. Even worse, average daily trading value in the Shenzhen ETF market plunged 40% m-m from USD110m at end-August to USD60m at end-September, largely due to steep falls in Chinese markets and new regulations governing margin loans. In contrast, the Japanese ETF market saw three-month average daily trading value rise from USD210m at end-August to USD250m at end-September thanks to strong demand for leveraged ETFs—this despite the stock market there tumbling. In sum, we attribute the overall contraction of the Asia Pacific ETF market to investor sentiment souring amid high volatility. 4Q investment strategy: G2-related risks—ie, US Fed rate hikes and Chinese economic slowing —should continue to weigh on the world’s financial markets in 4Q. Unlike in 3Q, when most Asia Pacific stock markets put in poor performances, countries should put in differing performances in 4Q amid high volatility—as hinted at by market advances in Korea and Taiwan in September. For 4Q, we recommend: 1) remaining focused on risk management; and 2) investing in value-stock ETFs—including dividend plays—listed in Korea and Taiwan. We also advise investors to: 1) remain exposed to volatility ETFs listed in Japan; and 2) include Chinese large-cap ETFs in the short term, policy momentum in China should pick up. ETF News 2015. 10. 1 2 Asia-Pacific ETFs ETF listings Note: As of Sep 30; based on existing ETFs Source: Bloomberg, Samsung Securities ETF listings, by exchange Exchange 2006200720082009201020112012201320142015Australia 14151220101112Bangkok 11115354Hong Kong 136122082911127Indonesia 1123Korea 851518164429163672Bursa Malaysia 1121Mumbai 1Ho Chi Minh 111Nagoya 1N.S. India 632872442New Zealand 2Osaka 222612Philippines 1Shanghai 112711618112Shenzhen 261141423Singapore 2152242Taiwan 24415341Tokyo 43613187201824Total 1625825096127108102110123Note: As of Sep 30; based on existing ETFs Source: Bloomberg, Samsung Securities 761937452030465072556939574548627341010203040506070802H061H072H071H082H081H092H091H102H101H112H111H122H121H132H131H142H141H152H15(No of products) ETF News 2015. 10. 1 3 Asia-Pacific listed ETFs, by asset class Asset class AUM (USDm)Number of ETFsEquity 221,637 734Fixed Income 34,797 9Money Market 10,778 68Commodity 4,726 79Specialty 1,335 44n/a 322 3Mixed Allocation 146 8Total 273,740 945Note: As of Sep 30 Source: Bloomberg, Samsung Securities AUM of ETFs, by exchange and asset class (USDm) CommodityEquityFixed IncomeSpecialtyMixed AllocationMoney MarketTotalASE 385 6,393 1,210 348 8,336 Bangkok 35 94 129 BSE India 21 21 Hanoi 4 4 Ho Chi Minh 15 15 Hong Kong 110 31,941 3,717 58 35,826 Indonesia 106 106 Korea 282 12,148 3,855 752 80 17,117 Malaysia 77 163 239 N.S. India 966 925 118 2,008 Nagoya 34 34 New Zealand 355 355 Philippines 29 29 Shanghai 68 20,677 1,055 34,454 56,255 Shenzhen 91 9,559 4 343 9,997 Singapore 1,091 13,875 598 15,564 Taiwan 47 5,418 66 5,531 Tokyo 1,651 119,967 58 178 322 122,175 Total 4,726 221,637 10,778 1,335 388 34,797 273,740 ETF News 2015. 10. 1 4 AUM of listed ETFs, by exchange Primary exchange TotalAveragePrevious month-end (USDm) (USDm)(USDm)Tokyo 122,175 714 123,983 Shanghai 56,255 815 32,457 Hong Kong 35,826 355 39,012 Korea 17,117 90 16,210 Singapore 15,564 389 18,577 Shenzhen 9,997 250 10,214 Australia 8,