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Asia ex-Japan’s mutual fund assets to reach USD1.1trn by year-end 2011

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Mutual fund assets in Asia ex-Japan slid 3% in the first half of 2011 to USD1 trillion, due mostly to poor market performance and net redemptions in two major markets, China and Korea. AUM fell by 7.9% in China and 6.6% in Korea, while other Asia ex-Japan markets grew to varying degrees, according to Cerulli’s flagship report, Asian Distribution Dynamics 2011, now in its tenth year.

However, in the four years to 2010, fund assets in the region, comprising China, Korea, India, Taiwan, Hong Kong, and Singapore posted a CAGR of 13.9%. During this period, China – Asia ex-Japan’s largest market by AUM – saw the fastest CAGR of 29.4%, followed by India’s 17.6%. Cerulli estimates that mutual fund AUM in the region will grow to nearly USD1.8 trillion by 2015, on a more modest five-year CAGR of 11.2%.

Banks continue to be a major mutual fund distribution channel in most of Asia ex-Japan, although their share of AUM has steadily declined to 53.6% in June 2011, from 54.4% at year-end 2010 and 55.7% in 2009. A few factors contributed to this, including regulatory tightening – especially in Singapore and Hong Kong – and the deliberate move by fund managers to diversify distribution. “We think that insurance, via unit-linked insurance products, is the most viable channel currently. Indeed, their share of AUM has risen to 3.6% in June 2011, from 3.3% in 2009,” says Ken F Yap, Cerulli’s head of Asia-Pacific research.

The industry needs to rethink its place in the distribution chain, which has so far been mostly “upstream”—as a manufacturer detached from the rest of the processes occurring “downstream”. Closer distributor relations and client communication will become increasingly important amid a tougher fund industry. Intensifying competition and escalating costs have been putting pressure on operating margins. Margins in China, Korea, and Singapore are in line with the global average of 31% to 33%, while margins in Taiwan and India were below the global average.

 

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