18 November 2018
A softer dollar contributed to strong fund inflows into Europe and Asia-Pacific ETFs. Photo: Reuters
A softer dollar contributed to strong fund inflows into Europe and Asia-Pacific ETFs. Photo: Reuters

Global capital flowing into Europe, Asia ETFs

As exchange-traded funds (ETFs) continue to gain popularity, the sector has become so big that it can now serve as a reliable indicator of global fund flows.

Exchange-traded products (ETP), which had only US$79 billion of assets under management (AUM) in 2000, has hit over US$4 trillion as of May this year. That means an annual expansion clip of 22.8 percent over the last 18 years.

There are more than 7,800 ETFs worldwide, which are traded in 64 exchanges in 51 nations and regions. The United States is the world’s largest ETF market.

Let’s focus on around 2,600 ETFs with AUM of over US$80 million.

Over the last 10 weeks, both US broad market ETFs and large-cap stock ETFs have reported net capital inflows, of US$5.38 billion and US$24.28 billion respectively.

Interestingly, the capital flow has reversed over the past week. US broad market ETF and large-cap stock ETF have seen net capital outflows of US$395 million and US$980 million respectively, but at the same time small cap stock ETF and mid-cap stock ETF have seen net capital inflows of US$370 million and US$500 million respectively.

That means investors stayed in the US market, only shifting interests from from large-cap stock ETF to small and mid-cap stock ETF over the past week.

Financial and healthcare ETFs are two sectors which have drawn the most net capital inflows among US stocks.

Over the last 10 weeks a net of US$3.01 billion has flowed into financial ETFs and US$2.96 billion into healthcare ETFs.

Elsewhere, there is strong interest in European stock ETFs, which attracted a net capital inflow of US$4.04 billion over the last 10 weeks, beating most other regions.

Improving economic growth and relatively loose monetary policy are probably key factors drawing investors to Europe.

The fund inflows numbers were also inflated by a stronger euro.

Euro has been rallying against the US dollar and strengthened above 1.18 from a low of 1.04 early this year, up 13.5 percent so far this year.

In local currency terms, Germany’s DAX and France’s CAD indices have gained 6.7 percent and 5.4 percent respectively year to date, but the gains were 19.4 percent and 18 percent respectively in dollar terms.

Emerging markets also benefited from a weaker dollar. In particular, Asia Pacific stock ETFs have lured a net capital inflow of nearly US$600 million over the past 10 weeks, the highest since early 2015.

This article appeared in the Hong Kong Economic Journal on Aug. 3

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal chief economist and strategist

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