Taiwan's eager retail investors along with a booming semiconductor industry and the right regulatory framework has allowed Taiwan's exchange-traded fund market to boom, drawing in more investment in 2025 than China and South Korea combined. Economics professor Lee Torng-her explains what the advantages and risks are for the booming ETF market.
00:00Bloomberg says investors are going big on Taiwan's exchange traded funds, or ETFs,
00:05putting over 19 billion U.S. dollars in them so far this year, the most in Asia.
00:11Taiwan's ETFs drew more money than those in South Korea and China combined,
00:16coming in at 9.4 and 7.9 billion U.S. dollars, respectively.
00:21Taiwan-listed equity ETFs have long been popular with local investors.
00:25Experts say strong inflows are likely to continue, driven by demand from retail investors and a strong local currency.
00:35And for more on Taiwan's ETF inflows, Alec McDonnell spoke to Li Tonghe, economics professor at National Donghua University.
00:44How sustainable is this boom in Taiwan's ETF market?
00:47I guess it is quite sustainable, first of all, in Taiwan's either stock markets or whatever the investment markets for investors pretty much dominate by retail investors.
01:04OK. And so one thing is that because for the last couple of years, we have this quite low interest rate environments.
01:15Right. So retail investors are always looking for a high yield.
01:21So, of course, they don't want to face more significant risk.
01:26So ETF is a kind of the investment vehicle can strike the balance between the risk and return.
01:33And the second thing is, I think, last year or two years ago, the government actually started to push for this Taiwan, what we call the Taiwan individual savings account.
01:49OK. So, of course, in this case, the government actually offers some sort of like kind of like incentive for individual investor or retail investor to put their money into this TISA.
02:02Hey, I think maybe another one could be the suddenly the appreciation of Taiwan dollar.
02:10Right. So this is actually to make retail investor realize, OK, there are greater risk in investing in this foreign currency denominated investment vehicle.
02:27Aside from the retail investors, what other advantages and benefits does this bring to the Taiwanese economy?
02:33So this semi-conductor industry, I guess they will still be a major driving force for Taiwan's economy.
02:44Right. So and so we could see a lot of this ETF actually kind of like, you know, tracking this semi-conductor industry's performance.
02:57Of course. OK. So I guess this is probably one of the advantage of the for this ETF in Taiwan and because lots of particularly for those equity ETF.
03:10OK. And they track a lot of these semi-conductor industry's stocks.
03:17So and of course, you know, other countries trying to, you know, catch up with, you know, Taiwan's semi-conductor industry.
03:28Right. But it's going to take I won't say a while, but probably maybe a decade or two decades.
03:34Who knows? So on the other side, what sort of risk does this open Taiwan's economy to ETF?
03:39ETF, I can I think ETF basically track the pool of investment vehicle.
03:46Right. Particularly for the equity ETF, they track those stocks.
03:50Right. So one thing is that if OK, if the economy actually sort of like is going down and then all the stock market will go down with the economy.
04:02Right. So of course, in this case, then the ETF you are buying or you're investing definitely will suffer from this.
04:10So basically, they are they are going along with the economy.
04:13OK. So this is the one thing for the the risk for these investing in this ETF.
04:20Another one is because there are various ETFs.
04:24Right. So some ETF may may not track whatever the underlying pools of assets very closely.
04:33So maybe there was some tracking arrow.
04:37So which probably will not give you whatever the return you wanted.
04:45OK. So this is what I call the tracking arrow risk of.
04:50OK. All right. I think that these are the two major risks.
04:54OK. The retail investor is going to face.
04:59That was Li Tonghe, economics professor at National Donghua University in Taiwan.
