Korean ETFs’ net asset value doubles in 3.5 years

South Korea’s exchange-traded funds (ETFs) surpassed 100 trillion won ($75.7 billion) in net asset value for the first time on Thursday, 21 years after the financial instrument was introduced to the country. The value has doubled since December 2019 as the funds have attracted Korean retail investors with overseas stocks that outperformed domestic equities.

A total of 733 ETFs are on the Korean stock market as of June 29, with 100.03 trillion won in net asset value, the Korea Exchange said on Friday.

The country’s first seven ETFs, linked to the Kospi 200 Index, debuted in October 2002 with 344.4 billion won in net asset value. The market saw its value exceed 50 trillion won in December 2019.

Local ETF transactions per day reached 2.7 trillion won as of June, more than double 1.3 trillion won in 2019. The daily transaction ranks the world’s third, following the US and China, according to the Korea Exchange.  

Analysts say that ETFs entice retail investors as they prefer pooled investment funds that offer both local and overseas stocks for a diversified portfolio.

“ETFs attract more local investors today as the funds have expanded the range of investments, such as in bonds with short-term or 30-year maturities. Also, ETFs benefit investors with lower transaction fees than mutual funds,” said Kim Nam-ki, head of ETF portfolio management at Mirae Asset Global Investments.

Korean financial authorities are planning to ease regulations on actively managed ETF trading to boost the market. They are considering enhancing fund managers’ discretion to use their capabilities more for fund operations, as well as reducing the funds’ tracking of market indices.

ETFs share in Korea’s entire financial market, excluding private funds and money market funds, increased from 20% in 2016 to 46% as of June 2023, according to the Korea Exchange.

Write to Tae-Hoon Lee at beje@hankyung.com

Jihyun Kim edited this article.