APAC ETF Flows: Record Assets Mask Diverging Investor Behavior in Q2 2026

Asia-Pacific ETF markets continued to tell two different stories in the second quarter of 2026. On one hand, regional ETF assets surged to a record USD 2.7 trillion, supported by rising equity markets and continued investor adoption across much of the region. On the other, Asia-Pacific ETFs recorded a second consecutive quarter of net outflows, totaling USD 63 billion, as large-scale redemptions from China-domiciled ETFs outweighed positive flows elsewhere. 

Want a deeper look at regional flows, asset growth, and category trends? Download the full Morningstar APAC ETF Flows Q2 2026 report for a comprehensive breakdown. 

Source: Morningstar Direct, ASX website, iFinD. Data as of June 30, 2026. 

China remained the primary driver of regional outflows as broad-based equity ETFs experienced another quarter of significant institutional withdrawals. Outside China, however, most major ETF markets continued to gather new assets. Australia, Hong Kong, and India all recorded positive flows, while Japan's ETF market reversed course after a strong start to the year, reflecting profit-taking and reduced risk appetite as local equities reached record highs.  

Investor preferences also shifted during the quarter. Fixed-income ETFs returned to favor as investors sought diversification and income-oriented exposures, particularly in Australia and China. Meanwhile, demand for precious-metals ETFs cooled as gold prices retreated from recent highs, contributing to net outflows from real-assets ETFs at the regional level. At the same time, investors continued embracing ETFs for more tactical purposes, fueling strong growth in leveraged and inverse products and highlighting the expanding role of ETFs beyond traditional market exposure.  

One thing that did not change is the diversity of ETF adoption across Asia-Pacific. While broad-based equity ETFs continued to dominate many markets, local investor behavior remained highly market-specific, shaped by domestic conditions, product innovation, and varying levels of ETF market maturity. The result is a region that continues to grow overall while following multiple paths of ETF development. 

Source: Morningstar Direct, ASX website. Data as of June 30, 2026. 

Investor demand remained centered on broad-market and income-focused strategies. Within equities, Australia large-blend ETFs led category flows, followed by North America and Australia equity income ETFs, reflecting renewed interest in U.S. equities and continued demand for income-generating investments. Within fixed income, diversified credit, Australian bonds, and global bonds attracted the strongest flows, highlighting investors' preference for diversified sources of income and duration exposure.  

Australia's fixed-income ETF market also continued to evolve. Product availability expanded further with the launch of the country's first actively managed private-debt ETF, underscoring growing investor interest in income-oriented and alternative fixed-income solutions.  

China's ETF market remained under pressure in the second quarter, recording RMB 752.4 billion in net outflows following the record RMB 805.3 billion withdrawn during the first quarter. Broad-based equity ETFs continued to bear the brunt of selling activity, with net equity ETF outflows reaching a record RMB 860.4 billion as institutional redemptions from major benchmark-tracking funds persisted.

While equity ETFs struggled, fixed-income ETFs emerged as a bright spot, attracting RMB 130.2 billion in net inflows as investors sought more defensive exposures amid continued market uncertainty and falling bond yields. Commodity ETFs also reversed course, recording modest outflows as gold prices pulled back from recent highs. By the end of the quarter, total ETF assets had declined to RMB 4.58 trillion.

Despite the challenging backdrop, product development remained robust. China launched 120 new equity ETFs during the quarter, surpassing previous records. Sector equity ETFs dominated new issuance and continued attracting investor interest, even as large benchmark ETFs experienced significant redemptions. The divergence highlights investors' increasing preference for targeted exposures over broad-market allocations.

Hong Kong’s ETF market reversed course in Q3 2026, recording HKD 8.3 billion in net outflows after posting strong inflows in the previous quarter. Total ETF assets fell to HKD 647.7 billion, down 13% quarter over quarter, although assets remained 3% higher than a year earlier. The decline was driven primarily by continued weakness in equity ETF demand and a sharp contraction in assets held in leveraged and inverse products.  

Equity ETFs accounted for the bulk of redemptions, recording HKD 14.7 billion in net outflows, approximately 60% higher than the previous quarter. Selling was concentrated in ETFs with Asia ex-Japan, China, and Hong Kong equity exposures, while inflows into Japan- and dividend-focused products only partially offset broader withdrawals. Alternative-strategy ETFs, particularly covered-call products, continued to attract new capital, though at a slower pace than in recent quarters. 

A key development during the quarter was the sharp decline in leveraged and inverse ETF assets. Assets classified as “Other,” which are dominated by these products, fell by more than half to HKD 70.3 billion. The drop was largely driven by selloffs in underlying semiconductor-related stocks, which weighed on products such as the CSOP Samsung Electronics Daily (2x) Leveraged Product and CSOP SK Hynix Daily (2x) Leveraged Product. While flows into leveraged products were volatile at the individual fund level, aggregate flows for the category were largely flat. 

The decline in leveraged-product assets also reshaped the competitive landscape among ETF providers. CSOP Asset Management remained the market leader, but its share of Hong Kong ETF assets fell to 34% from 42% in the previous quarter. This narrowed the gap with Hang Seng Investment Management, which increased its market share to 27%.  

Product development, however, accelerated significantly. Hong Kong launched 51 new ETFs during the first nine months of 2026, already surpassing the full-year total for 2025. Roughly half of these launches occurred in the third quarter, following the National Financial Regulatory Administration’s August announcement allowing mainland China insurance funds to invest in Hong Kong ETFs through ETF Connect. Around half of the year-to-date launches were thematic ETFs, with a strong emphasis on artificial intelligence and technology-focused strategies, highlighting continued innovation despite weaker market flows.  

India's ETF market remained on a growth trajectory in the second quarter, although flows moderated from the record pace set earlier in the year. ETFs attracted INR 333.8 billion in net inflows, down from the exceptional first-quarter total but still indicative of strong investor demand. Total ETF assets climbed to a record INR 11.5 trillion.  

A key shift during the quarter was the return of equity ETFs as the leading destination for flows. Equity ETFs attracted INR 250.2 billion, while real-assets inflows fell sharply to INR 72.6 billion as investor demand for precious-metals exposure normalized following a cooling in gold prices. Fixed-income ETFs experienced modest outflows, while capital-preservation strategies returned to positive territory.  

Large-cap ETFs dominated investor allocations, gathering INR 222.6 billion and overtaking precious-metals ETFs, which had led flows in recent quarters. The concentration of flows into large-cap products suggests investors continue to favor liquid, cost-effective core exposures, particularly during periods of market volatility. 

Source: Morningstar Direct. Data as of June 30, 2026. 

Japan's ETF market reversed course during the second quarter as strong first-quarter inflows gave way to net outflows, driven primarily by broad-market equity ETFs and Nikkei 225-linked leveraged products. Investor activity reflected profit-taking and reduced risk appetite as domestic equity markets continued to reach record highs. Outflows were concentrated in broad-market equity ETFs and leveraged products linked to the Nikkei 225, reversing much of the previous quarter's momentum.  

Technology-focused ETFs were a notable exception. Semiconductor-related ETFs attracted strong inflows amid continued enthusiasm for Japan's role in the global semiconductor supply chain. Bond ETFs also gathered assets as investors sought income opportunities and defensive allocations through currency-hedged international fixed-income exposures and short-duration strategies.  

Real-assets ETFs experienced outflows, primarily from gold-related products, likely reflecting profit-taking amid a pullback in gold prices. Despite weaker investor demand overall, Japan's ETF market ended the quarter at a record JPY 137 trillion in assets, supported by market appreciation. 

The second quarter of 2026 highlighted the growing disconnect between asset growth and fund flows across Asia-Pacific ETF markets. Regional ETF assets climbed to a record USD 2.7 trillion, yet the region still recorded a second consecutive quarter of net outflows as redemptions from China and a reversal in Japan outweighed continued demand elsewhere.  

Outside those two markets, investor appetite remained resilient. Australia continued to attract steady equity and fixed-income inflows, while India's ETF market reached new asset highs despite moderating flows. Across the region, fixed-income ETFs regained momentum, investor interest in gold eased, and demand for more specialized ETF exposures remained strong. Together, these trends reinforce how ETF adoption across Asia-Pacific continues to evolve differently across markets while supporting long-term growth for the region overall.  

For a deeper analysis, including category-level flows, fund trends, and provider insights, download Morningstar’s APAC ETF Flows Q2 2026 and China & Hong Kong ETF Flows Q2 2026 reports.