Priming Asia’s ETF growth

Asia’s exchange-traded fund (ETF) market has seen stellar growth in recent years. By July 2024, assets in Asia Pacific ex-Japan ETFs hit a record $979.3 billion, while net year-to-date inflows soared to $191.1 billion – both all-time highs. ¹

The drivers are clear: ETFs offer liquidity and flexibility in volatile markets, are transparent as exchange-listed securities and can provide diversity to other traditional investment strategies.

Against this backdrop, it’s only natural for banks to become an integral part of the ETF ecosystem.

Access is a key draw: Delta-One desks, which often sit within a bank’s prime brokerage unit, enable institutional investors to trade in emerging and restricted markets – such as China A-shares, India, and frontier markets – where direct trading can be complex due to capital controls and regulatory restrictions.

Bank boom

The Delta-One function of a bank is more than a transactional service. Rather, it enables ETF providers to navigate complex market dynamics. The desk can support synthetic ETFs, giving asset managers exposure to markets without the need to directly own the underlying assets.

Then there’s seeding and market making. New ETFs require initial capital to establish liquidity and a designated broker to help facilitate buying and selling once the ETF has been launched. Delta-One desks at banks can provide this funding to help new ETFs in meeting minimum asset thresholds and ensure there is a transparent marketplace.

Beyond the Delta-One desk, one of the biggest advantages in partnering with a universal bank is the end-to-end service they can provide for asset managers active in ETFs.

Ideally, a provider not only facilitates the trading and market making but also offers administrator services for the underlying ETF assets, allowing issuers to benefit from economies-of-scale of securities lending programmes. These programmes allow ETF issuers to lend underlying stocks and bonds through an agent-lender to institutional investors for a fee, which offsets management fees, enhances return and supports portfolio optimisation.

Gaining an edge

Global market volatility, inflation and interest rate uncertainty have driven investors to look at investment strategies beyond the traditional 60/40 portfolio model of stocks and bonds. This is driving demand for alternative sources of alpha, which has fuelled active ETFs as investors become keen to take greater control of their portfolios. In Asia Pacific, active ETFs account for about $40 billion in assets, up from $11.5 billion in 2017, with expectations high for further growth . ²

Additionally, more complex and risky products like leveraged, synthetic and inverse ETFs are gaining traction, allowing investors to boost their exposures while hedging against downturns – a strategy that is beneficial in an uncertain macro environment . For instance, CSOP listed the first batch of nine single stock leveraged and inverse products in Hong Kong in March 2025, a milestone for the city. ³

Thematic ETFs – such as those focused on electric vehicles and biotechnology – are also rising in popularity as they offer investors exposure to high-growth sectors, while the growing trend of ETF cross-listings is expanding the market further.

As the competitive landscape shifts, banks’ servicing models are in the spotlight – institutional investors are increasingly favouring banks with a holistic model, broad geographic footprint, strong balance sheet and solid credit quality.

HSBC has a clear edge, given its international strength with a global custody network across 96 markets , a proven fund administration business and a prime brokerage offering with an established Delta-One desk. Together with its deep balance sheet, solid execution and innovation capabilities, it has an end-to-end model which has helped the bank to gain ground in the ETF marketplace.

Case in point: the Asia-Middle East trade and investment corridor. This has thrived in recent years as the two regions enjoy solid economic connectivity, favourable and wealthy demographics and promising growth prospects. From an access point of view, the CSOP Saudi Arabia ETF, issued and managed by CSOP Asset Management, was launched in November 2023 as Asia’s first ETF tracking the performance of Saudi Arabian equities. HSBC was the ETF partner in the listing of the fund. ⁴

In September 2024 , Saudi Arabia, in turn, granted approval to list its first Hong Kong-focused ETF. ⁵

Where does the Asia market go from here? ETF managers are clearly seeing opportunities in leveraged, synthetic and fixed income products. They also want banks with strong execution and Delta-One capabilities, a broad custodial network and local expertise. HSBC checks every box and more – making it an ETF powerhouse.

“In times of uncertainty, asset managers and investors will gravitate to organisations with large balance sheets and robust credit ratings, like HSBC,” said Ken Hon, Head of Equities, Asia-Pacific at HSBC. “Our clients know their assets are well protected with a stable custodian that can withstand continuous financial uncertainty.”