Morningstar Magazine - February/March 2015 - 9

when compared with developed markets such
as the United States. As Morningstar has
demonstrated through our Global Fund Investor
Experience surveys, the United States is
an extremely investor-friendly market compared
with most other countries. The large number
of self-directed investors, economies of scale,
and high level of price competition lead to lower

As for trading fees for directly investing in stocks
in Asia, fees are being reduced to encourage
retail sales and minimize some of the cost hurdles
to direct investing.
As well as cutting trading fees, the Singapore
Stock Exchange (SGX) lowered the
minimum block size to 100 shares from 1,000

What is one of the key impediments to enjoying
sunny beaches in our 60s and beyond?
Performance. And what's one of the most
consistent predictors of performance? Fees.

fees for investors, despite the United States being
closed to cross-border fund sales.
In contrast, Asia is still characterized by bankled sales of high-commission mutual
fund products with quarterly sales campaigns
of often trendy, rather than long-term,
products being an unfortunate feature of assetmanagement product distribution.
It's true that key Asia markets such as Hong
Kong and Singapore are open to crossborder sales of UCITS (otherwise known as the
Undertakings for the Collective Investment
of Transferable Securities). But the ability of
Asian investors to gain access to the vast UCITS
marketplace in the European Union does
not seem to have led to reduced costs. Indeed,
small, locally domiciled funds are often
cheaper than giant Luxembourg- and Irelandbased funds.
This appears to be the result of additional costs
such as administrative and operating fees
rather than higher management fees. We can find
the same product, one domiciled "locally" in Asia,
the other in Europe, and the local fund's total
expense ratio can be about 30 basis points lower.

shares in January to encourage more retail
investors. Currently about 40% of the SGX volume
is retail, which compares favorably with Hong
Kong, where just more than 20% of the volume is
attributable to retail investors. However, they
are both dwarfed by China, where retail investors
are responsible for more than 80% of turnover
on the Shanghai Stock Exchange. Perhaps this
appetite for direct stock investment explains
the lack of growth in China's funds management
industry. In fact, money market funds were
the only category to receive meaningful inflows
over the first half of 2014.
Price competition and technology are helping to
drive retail demand for direct stock trading
in Asia, as cost and complexity hurdles diminish.
In Hong Kong, online platforms such as
E-Trade and Charles Schwab offer trading in U.S.
stocks at less than $10 a trade, and Hong
Kong brokerages often offer brokerage fees as
low as HKD 5 or several basis points.

such as QFII (qualified foreign institutional
investor), RQFII (offshore renminbi QFII),
QDII (qualified domestic institutional investor), and
the Shanghai-Hong-Kong Stock Connect
initiative should help capital flow more freely,
bringing more efficient price discovery and greater
competition for your investment dollars. Over
time, this should pressure many types of fees on
many investent products and services.
Shining a Light

How is Morningstar helping investors in the Asian
investment landscape? As well as broadening
our Asian mutual fund coverage, we've
expanded coverage of Asian direct equities
to help investors in all markets identify great
companies at great prices, which further
enhances investor odds of retiring comfortably
one day. Whether it is platforms for individuals,
advisors, or institutional investors, or our
own Morningstar Investment Management
solutions, we hope to bring greater transparency,
objectivity, and competitive pricing to Asia.
Through our objective lens and unwavering
investors-first thought leadership-such as in the
examples that follow in this issue-we hope
to do our small part in helping investors achieve
better investment outcomes and avoid the
many challenges faced along the way, which in
no small way includes fees that drag on
performance-the real monsters sometimes
hiding in the darkness. K
Grant Kennaway is head of Asia-Pacific manager
research with Morningstar.
Joel Bloomer is head of Asia-Pacific equity and credit
research with Morningstar.
Both are members of the editorial board of
Morningstar magazine.

Steps toward capital market liberation, particularly in China, on balance should also ease
investor costs and expand Asian investor options.
While not the focus of this short note, it's
worth mentioning that expansion in programs

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Morningstar Magazine - February/March 2015

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