DUBAI: Demand for emerging-market exchange traded funds (ETFs) is set to grow rapidly as investors hit by foreign-ownership regulations in many countries buy the product as an alternative, a managing director at money manager BlackRock said.
Investors have been scrambling to get into fast-growing emerging economies in Asia and Latin America, lured by high returns.
But many countries have imposed restrictions on direct ownership of assets including stocks, forcing them to look at alternatives such as ETFs.
"The desire to invest in emerging markets and frontier markets has grown significantly," Deborah Fuhr, global head of ETF trading at BlackRock told Reuters in an interview.
Many people can’t invest directly because they don’t have foreign investor status to invest in Korea, Taiwan, and India or say China or they don’t have special custodian set up," she said.
Emerging market ETF products globally have had inflows of $27 billion so far this year, compared with $34 billion for the whole of last year, Fuhr said.
The overall allocation to emerging markets still lags the more developed countries in Europe and the United States, she said, giving more scope for growth.
Investors poured another $5.8 billion into emerging market funds in the third week of October, with global emerging market equity funds seeing record inflows for the second time in three weeks, fund tracker EPFR said.
Demand for ETF products has also prompted countries such as Saudi Arabia and the United Arab Emirates, classified as frontier markets, to launch ETF products traded on local bourses this year.
Saudi Arabia’s market regulator told Reuters on Tuesday that it intends to allow more ETFs which are traded like stocks, while other ways to invest are being studied.
The kingdom does not allow foreigners to invest directly in its stock markets.
"I think the thing that many people don’t realize is that even foreigners can open a bank account in Saudi and buy ETFs which you can’t do to buy stocks," Fuhr said.
BlackRock late last year bought Barclays Global Investors (BGI) for $13.5 billion, mainly for its iShares ETF business, which is the world’s largest with a 45 percent market share.
ETFs were first launched in Canada in 1990 and arrived in the United States three years later. ETFs have only been available in Europe for 10 years. While stocks make up some 80 percent of ETF investments in the United States, flows over the first half of 2010 show fixed-income was growing.