SINGAPORE (Mar 19): Exchange-traded funds are being increasingly blamed for market volatility, because they are increasing in number and size by the day as investors, many of them retail, pile into ETFs that track popular indices such as the Dow Jones Industrial Average, Standard and Poor’s 500 and our own Straits Times Index.

On Feb 27, none other than US Federal Reserve chairman Jerome Powell downplayed the effect ETFs had on the US market’s sharp drop that month. “ETFs are a particular form of fund. I don’t think they were particularly at the heart of what went on, on those days,” he said in response to questions from Congress.

Market dynamics have turned ETFs into a meaningful driver of equity prices. As money goes into these ETFs, the index will rise, but once money exits, the index will fall, prompting redemption and leading to a vicious circle. We remain watchful of these drivers of equity prices.

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