China ESG funds bleed $1.4bn in Q2 as Asian growth slows sharply
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Chinese funds focused on environmental, social and governance recorded net outflows of $1.4bn in the second quarter, marking an even sharper slowdown than sustainable funds elsewhere in the region.
ESG funds in the Asia-Pacific region, excluding Japan and China, suffered a second consecutive quarterly decline in net inflows, attracting just $929mn during April to June, down from $1.27bn in the first quarter, Morningstar noted in its latest sustainable funds report.
Taiwan raked in the most net inflows for the quarter at $91mn, while Hong Kong had $129mn. South Korea, India and Indonesia had the biggest net outflows apart from China in the second quarter among regional markets.
Figures for China, which were only available after the publication of the report, showed net outflows of $1.4bn in the second quarter were a dramatic turnround from the $208mn in net inflows that the country had in the first quarter.
Environmental sector funds led all other sectors with net outflows of $1.06bn in China, which Morningstar attributed to market volatility and investors cashing in on profits during market rebounds in May and June.
The significant drop in inflows in the Asia-Pacific region echoed slowing trends in other parts of the world.
Globally, sustainable funds took in just $32.6bn in net new flows for the second quarter compared with $87bn in the first quarter, representing a 62 per cent drop.
Europe, with inflows of $307bn, accounted for 94 per cent of total global net flows for the second quarter, but this was still a 57 per cent drop from $71.7bn in the first quarter.
South Korea and Taiwan remain the Asian countries with the two biggest markets for ESG funds by assets outside China and Japan, accounting for 10.8 per cent and 6.3 per cent of the region’s assets respectively.
“Amid investor concerns over a global recession, inflationary pressures, rising interest rates and the conflict in Ukraine, sustainable funds net inflows plummeted in the second quarter, [but] fared better than the broader market,” said Hortense Bioy, Morningstar’s global director of sustainability research.
Sustainability-themed ETFs in Asia doubled their total collective assets to $10.5bn during 2021, according to a report from consultancy Cerulli, but the proliferation of numerous similar ETFs in China has led to some failed launches.
“ETFs have been a popular channel for asset managers to put forth the ESG/thematic ideas to reach investors in China and the popularity of funds of specific themes has been influenced by the Chinese government’s commitment to pursue economic transformation,” said Jackie Choy, Morningstar’s director of ETF research for Asia.
“Given this backdrop, we wouldn’t be surprised to see more ESG/thematic ETF launches that ride on any latest economic development or regulations,” he added.