Taiwan-listed Exchange Traded Funds (ETFs) secure over $19 billion in investments, fueled by retail investor interest

Taiwan-listed Exchange Traded Funds (ETFs) secure over $19 billion in investments, fueled by retail investor interest

In a remarkable turn of events, Taiwan's Exchange-Traded Fund (ETF) market has surged to the third position in the region, according to industry data and Bloomberg Intelligence. This significant rise can be attributed to a myriad of factors, including strong market performance, global economic trends, investor appetite for emerging markets, and the popularity of ETFs as investment vehicles.

Equity and fixed-income products make up the majority of Taiwan's ETFs. Despite foreign outflows, the benchmark TAIEX index has only dropped about 2 percent, a testament to the resilience of the Taiwanese market. A rally in the New Taiwan dollar is further supporting investments in local currency.

One of the key drivers of this growth has been the strong performance of Taiwan's leading technology and semiconductor companies. The global economy's recovery from the COVID-19 pandemic has led to increased investment in emerging markets, including Taiwan, due to its robust industrial base and economic resilience.

Investors often seek diversification and growth potential in emerging markets during periods of global economic recovery. Taiwan, with its significant technology sector, has been particularly appealing. The popularity of ETFs as investment vehicles was on the rise in 2021, making them attractive to investors interested in accessing specific markets like Taiwan.

The development of cross-border ETFs and investment opportunities could also have contributed to increased inflows by facilitating easier access for foreign investors to the Taiwanese market. Officials recently greenlit cross-listed ETFs between Taiwan and Japan, allowing products to list in both locations.

The surge in inflows for the biggest equity ETF followed a fee reduction and share split. The biggest equity ETF, with an almost 60 percent weighting in Taiwan Semiconductor Manufacturing Co, the world's largest contract chipmaker, has garnered $6.2 billion in inflows this year, the most in the region.

Taiwan's retail market and sophisticated investors could help local ETFs grow much quicker than the rest of the region. The overall confidence in TAIEX and the chip industry is strong among Taiwanese traders, spurring interest in local ETFs. Most demand for Taiwan's ETFs comes from retail investors who buy them as a long-term investment.

The total assets in Taiwan's broader ETF market surged 64 percent to NT$6.4 trillion last year. The inflows into Taiwanese ETFs this year are more than the inflows into products listed in South Korea and China combined. Foreign investors have been buying Taiwan's ETFs to speculate on the local currency.

Despite these positive developments, Taiwan's shares have seen foreign outflows of $3 billion this year, the fourth-most in Asia. However, about 2 million local investors participate in investment plans that bring about NT$15 billion (US$516.39 million) of inflows into TAIEX ETFs every month.

The central bank is seeking feedback on a plan to tighten currency purchases by overseas stock investors, suggesting that regulatory measures are being put in place to manage this growth and maintain market stability. As these trends continue, Taiwan's ETF market is poised for further growth and could become a significant player in the global ETF landscape.

1. The popularity of ETFs as investment vehicles, fueled by a strong global economy recovery and increased interest in emerging markets with robust industrial bases, has resulted in a substantial increase in investing in technology-focused markets like Taiwan.
2. The development of cross-border ETFs and investment opportunities, combined with the reduction in fees and share splits for the biggest equity ETFs, has made it easier for foreign investors to access Taiwan's market, consequently leading to large inflows and positioning Taiwan as a significant player in the global ETF landscape.

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