The Asia-Pacific exchange-traded fund ( ETF ) market could experience sustained strong inflows due to growing investor interest and a resurgence of actively managed ETFs, as large global issuers continue to enter the market, according to a recent report.

The Asia-Pacific region ( encompassing 16 countries offering ETFs ) saw explosive growth of 47% last year, which was significantly higher than the global growth of 28%, finds the 2025 Global ETF Outlook: Global Expansion Accelerates report published by global asset manager State Street, which is the largest global ETF service provider, according to the end-December 2024 ETFGI Global Insights Report, servicing nearly half of ETF assets globally.

Even more astounding for the region, the State Street report points out, is the fact that 45% of 2024’s growth was from inflows and only 2% from market appreciation. As well, that growth was broad and wide across all asset classes – equity, fixed income, commodity and cryptocurrency – and strategies – active, passive, smart beta and leveraged/inverse.

Key trends and forecasts for Asia-Pacific ETFs in 2025, the report, notes are:

• China to surpass Japan in ETF market size by 2025 – In 2025, China is set to surpass Japan in size, with its ETF market becoming the largest in the Asia-Pacific region and its assets under management exceeding US$700 billion. State fund purchases are expected to continue this year, following Chinese authorities’ directives for fund firms to increase local equity holdings by 10% over the next three years.
• Japan’s ETF market growth driven by retail participation and NISA reforms – In Japan, growth is projected to continue with at least two new global asset managers entering the ETF market. This growth will likely lead to increased retail participation as issuers educate investors on the benefits of using ETFs in Nippon Individual Savings Accounts ( NISAs ). With over US$15 trillion in household assets, Japan presents a significant opportunity for ETF growth, and NISA reforms are expected to encourage more retail investors to allocate their savings into long-term investment vehicles like ETFs.
• South Korea’s active ETFs to thrive – In South Korea, active ETFs are predicted to comprise over 33% of the total ETF market, which will exceed US$150 billion. Investors are showing interest in thematic ETFs that offer potential for outsized returns and global exposure. Over the past two years, ETFs have grown from 9.5% to 15.5% of the mutual fund market, a trend likely to continue due to ETFs’ lower fees and ease of adoption on digital platforms.
• Taiwan’s ETF market outpaces mutual funds with dynamic growth – Similarly, in Taiwan, the ETF market is outpacing the mutual fund market, with ETFs now representing 65% of the market compared with 47% two years ago. This growth has led the Financial Supervisory Commission to approve active ETFs. Taiwan is expected to see continued dynamic growth, with at least five asset managers launching active ETFs. Total ETF assets are projected to exceed US$250 billion.
• Australia’s ETF market growth continues – There is dynamic growth in Australia, with at least three US$100 billion asset managers entering the ETF market. Net inflows are expected to surpass US$30 billion, with advisers increasing ETF allocations by more than 33% over the next year. The Australian ETF market continues to expand, driven by the adoption of ETFs across various channels, including self-managed superannuation funds. The cryptocurrency market here will also expand, with at least one new coin expected to launch in 2025.

“Within Asia-Pacific, the China ETF market experienced the most significant growth of 75% year-on-year in 2024, with over 60% of it coming from net inflows,” says Ahmed Ibrahim, State Street’s head of ETF solutions for Asia-Pacific. “The three big themes for 2024 were ETF buying by the state government, expansion of the ETF Connect scheme with Saudi Arabia and Singapore, as well as some of the largest ETF firms coordinated 70% fee reductions after the China Securities Regulatory Commission signalled the need to advance the reforms.

“Taiwan is also one of the fastest-growing ETF markets in the region. ETF assets grew 54% last year and 39% over the past 10 years. The market is super-charged by retail investors. Investors have been heavily weighted to high-yielding investments. The ETF market is swallowing the mutual fund market with ETFs representing 65% of the market compared with 47% two years earlier.

“While still holding onto the crown of the largest market in the region, Japan has had that position eroded since the Bank of Japan stopped ETF purchases in 2023. Even so, the market rebounded with over US$10 billion in net inflows in 2024. The major reform providing tailwinds was the enhancements to Japan’s NISA. The changes include making the tax-free holding period indefinite, and increasing the annual investment limit and the tax-free holding limit. The goal of the NISA programme is to increase savings in long-term investment vehicles, such as ETFs.”

Commenting on the outlook for the region, Frank Koudelka, the asset manager’s global head of ETF solutions, adds: “We expect to see strong inflows to persist with expanding investor interest and actively managed ETFs to rebound as large, global issuers continue to enter the market and focus more on distribution. Retail investors in the Asia-Pacific region are increasingly turning to ETFs for their flexibility, tax efficiency and ease of access – and younger investors are leading the charge.”