Asset Tokenization & Investing in China

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On this week’s episode of ETF Prime, host Nate Geraci brought on VettaFi Senior Research Analyst Zeno Mercer to discuss the growing momentum behind the tokenization of securities. Afterward, Matthews Asia portfolio manager Andrew Mattock joined Geraci to discuss the firm’s ETF investment strategy.

The Tokenization Process

Looking at BlackRock’s latest announcement of tokenized funds, Mercer discussed the process for tokenizing assets on the blockchain. Mercer noted that the act of spinning up an asset for tokenization can be a “really easy” process, mentioning that money market funds are particularly straightforward conversion options.

He added that the decentralized finance community has been engaging in tokenized assets for years now. Looking ahead, Mercer believes this is a growing field, providing access to stable, interest-accruing assets, while benefiting from the flow transparency through the public blockchain.

Long-Term Benefits

Evaluating long-term benefits of tokenization, Mercer noted that the crypto industry’s self-monitoring and self-correcting aspects make it “way ahead of the game” compared to how more traditional markets work. He added that transactions on the blockchain can be faster, while investors and traders can benefit from fractionalized ownership options.

Mercer pointed out that the blockchain and cryptomarkets operate 24/7, giving investors access to the market whenever they wish. “Crypto doesn’t sleep. Blockchain doesn’t sleep. you can make transactions at any point in time,” Mercer noted. He says he believes the benefits of tokenization and the blockchain will lead to “more democratization of complex instruments” down the line.

Major Funds Join In

With major funds like BlackRock, WisdomTree, and Franklin Templeton beginning to offer tokenized money market funds, Geraci asserts his belief that tokenization will continue to see growth in the market down the line. Geraci asked Mercer how crypto assets can also benefit from tokenization. Mercer said that tokenizing money market funds should provide increased attention and potential utilization to other crypto funds operating on the same blockchain. Looking at the next generation of investors, Mercer posited that tokenized assets “won’t seem unusual to them,” drawing a comparison to the digitalization of banking.

Geraci noted that both BlackRock CEO Larry Fink and WisdomTree CEO Jonathan Steinberg have publicly embraced tokenized assets as a key financial fixture down the line. “It’s amazing to see these major institutions and players that have kind of been quiet or even been disparaging of it, actually jumping on board. I mean, this is quite the paradigm shift,” Mercer added.

Blockchain Beneficiaries

Geraci then asked Mercer for investment advice regarding exposure to companies that are positioned to benefit from tokenization. Mercer noted that players like BlackRock who are publicly spearheading tokenization efforts “are in a better position than the companies that are not doing it.” He added that organizations engaged in cybersecurity identification, connectivity, and networking on the blockchain can be key players on the path to a more automated and “frictionless” kind of finance. Mercer mentioned it may be worth looking at funds like the Amplify Transformational Data Sharing ETF (BLOK) that have wide exposure to blockchain operations.

Investing in Asia

Geraci then brought in Andrew Mattock, portfolio manager at Matthews Asia. Geraci asked Mattock to break down the firm’s ETF investment strategy regarding Asia and emerging markets.

Mattock asserted that liquidity and access are important factors to present to investors: “In Asia, people are looking for that certainty when it comes from liquidity, when it comes to liquidity, and when it comes to access as an alternative form of distribution that people can readily accept alongside our mutual fund platform.”

Geraci then asked Mattock if he believes China is still an investable market, given the geopolitical concerns. Mattock noted that reform is already underway for China’s property market, which remained a large concern for investors. Despite investor hesitations, Mattock said China remains an essential player in global supply chains, while possessing domestically orientated drivers that don’t rely on export for growth. He added that Matthews Asia is focused on the emerging market of more service-orientated Chinese companies as possible investment options.