Outlook rosy for currency-hedged and short & leveraged ETFs in Asia, says S&P Dow Jones

Dec 9th, 2015 | By | Category: ETF and Index News

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S&P Dow Jones Indices (S&P DJI), a leading global index provider, has summarised some of the key exchange-traded fund trends in Asian financial markets in 2015, and provided an outlook for 2016.

S&P DJI's outlook rosy for currency-hedged and short & leveraged ETFs in Asia

Inverse and leveraged ETFs have become popular in Hong Kong (pictured), Japan, Korea and Taiwan.

The big investment theme in early 2015 was Chinese stocks and ETFs which rallied from late 2014 until crashing in July of this year as panic selling in domestic China A-shares, suspensions of many stocks trading and devaluation of the renminbi conspired to bring Chinese equities lower. Japanese equities (on a hedged basis) remained attractive throughout the year until some outflows were recorded in Q3.

S&P DJI expect currency fluctuations to be a major theme in 2016 and as such currency-hedged ETFs should continue to be favoured by global investors with wider adoption especially in Europe and Japan. Currency-hedged ETFs have been the product of choice for ETF issuers this year with a number of new funds being listed and attracting investors assets. This can be expected to continue if the US dollar continues to appreciate as forecasted by many.

“This year saw inverse and leveraged ETFs become popular investment concepts particularly in Asia. In Taiwan, there have been inverse or leveraged ETFs on Taiwanese equities, Chinese equities, Japanese equities, and US equities. In Japan, nine inverse or leveraged ETFs based on the JPX/Nikkei 400 Index came to market this year,” said Tianyin Cheng, Associate Director of Strategy Indices at S&P Dow Jones Indices.

Inverse and leveraged ETFs enable investors to amplify market returns or profit from falling prices across various asset classes. Their flexibility to express directional views on asset price movements has made them an ideal product for tactical investors and those wishing to hedge existing portfolio exposures.

“Similar trends are observed from Korea and Hong Kong product providers. The popularity reflects the changing market dynamics, especially the investment preference and risk appetite among Asian investors,” added Cheng.

Further loose monetary policies such as continued quantitative easing in Japan and Europe have also spurred S&P DJI to expect corporate bond and high yield bonds to attract more attention as low interest rates force investors to take on more risk in the hunt for yield.

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