Cerulli Associates believes that the reach of UCITS products is shrinking in Asia ex-Japan as most countries are increasingly focusing on building up their onshore markets.
Currently, UCITS are predominantly sold in Hong Kong, Singapore, and Taiwan. There is also some UCITS traction in China via the Qualified Domestic Institutional Investor (QDII) program, but the assets under management (AUM) remain very small.
Cerulli reports that firms focusing on UCITS fund sales need to be present in Hong Kong, Singapore, and Taiwan. Hong Kong and Singapore are among the smaller mutual fund markets in Asia, and as such Cerulli Associates sees Taiwan as the main driver of UCITS asset growth in Asia ex-Japan at present.
However, Taiwan is seriously focusing on building up its onshore fund industry at the expense of sales of offshore products such as UCITS, which will weigh on UCITS asset growth. Meanwhile, markets such as India and Korea remain highly secular, and it remains virtually impossible for UCITS products to gain traction there.
"UCITS penetration has fallen over the years in Asia, from 14.6 per cent in 2010 to 10.2 per cent as of end 2014. It is also pointless for UCITS managers to get excited about the imminent mutual recognition of funds (MRF) scheme between China and Hong Kong as funds sold under this scheme have to be locally domiciled," says Rachel Poh, senior analyst at Cerulli. “In light of these challenges, we expect UCITS asset growth in Asia to slow further going forward.”