A new study by BNY Mellon Asset Management predicts that the Asia-Pacific ETF market could grow to as much as $250 billion in AuM by 2016.

The Asia-Pacific exchange traded funds market could expand to around $250 billion in assets under management by 2016, according to the latest report by BNY Mellon Asset Management.

To-date, Hong Kong and China account for around 35 per cent of total ETF AuM in the region, with Japan accounting for about 45 per cent. The Asia-Pacific ETF market as a whole is seeing a growth of 15 to 20 per cent annually. The so-called mutual recognition of investment products between the two areas is expected to transform their respective markets and grow Asia-Pacific's ETF industry by as much as 50 per cent by 2016, from a base of about $165 billion at present. 

"There's great potential for mutual recognition to make life easier for ETF promoters and drive product design and development as they expand their footprint in the Asia-Pacific region. But success in building the ETF market in China and sustaining product development also requires changes in local market infrastructure and, most importantly, regulatory reforms," notes Rex Wong, managing director at BNY Mellon's asset servicing business in Asia. 

Wong adds that in order for China's ETF market to each the level of its larger counterparts in Asia-Pacific, like Japan, Hong Kong or Korea, new market infrastructure is necessary. These include adding more broker-dealers to act as ETF market-makers, creating ETF products that can access multiple alternative hedges to withstand changes, and the introduction of a more streamlined process for transferring the RMB across borders. 

"Once the regulatory and infrastructural foundations are in place, the market will be able to support a greater number of ETFs and investment styles covering a variety of industry sectors, asset classes and investment strategies," he added.