Tracking China through indexes

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Fred Zheng, Triplicity

Fred Zheng (pictured) at Triplicity writes on the growth of ETFs in China – With continuous improvement of the ETF market, the ETF market in China entered a new stage of rapid development in 2020.

By the end of December 2020, a total of 366 ETF products had been listed in the Chinese market. The total assets under management of CNY1.1 trillion(USD170 billion)a sharp increase of 57.68 per cent over the last year, with both the number of products and the assets under management reaching a 10-year high.

 

Triplicity graph

The China ETF market has the following features in 2020:

1. In terms of the number of products, equity ETF products ranked first, accounting for 69.53 per cent, and currency products ranked second, accounting for 23.64 per cent; Cross border ETFs accounted for 3.05 per cent; Bond ETFs and commodity ETFs accounted for 3.78 per cent of the total.

2. The demand for industry and thematic ETFs has increased significantly, Chip ETF (159995.SZ) is the largest product (AUM USD 20.5billion) issued in China in 2020.

3. The market efficiency keeps improving, and the turnover rate of ETF products increased significantly, however the discount and premium rate decreased, and the proportion of low fee products keep rising.

4. The market investor structure is still dominated by institutional investors, while the participation of individual investors has increased significantly.

The private funds, prop firms, mutual funds and insurance institutions are the main buyers of ETFs.  A total of CNY649.013 billion(USD64.9billion)was held, accounting for 69.30 per cent of the total AUM; Individual investors held CNY287.456 billion (USD 28.7billion) of ETF products, accounting for 30.70 per cent of the total AUM, an increase of 22.29 per cent over the last year.

5. In 2020, both the number of products and the asset under management of cross-border ETFs increased significantly. The number of cross-border ETF products increased from five in 2019 to 14 in 2020; The largest cross-border ETF is Hensheng ETF (159920.sz) and the assets under management of Hensheng ETF (159920.sz) increased from CNY4.687 billion in 2019 to CNY120.825 billion in 2020, nearly tripled.

Some hints about the next stage of the China ETF market

1. In 2020, the profits making effect of CSI 300 index was weaker than that of industry indexes such as science and technology, medicine and liquor. The market demand will shift to new technology, new energy and thematic ETF products.

2. China is stepping up efforts to research and develop ESG indices, also promoting the ESG ETF products.

3. The management fee of ETF products will be further reduced through AI investment adviser technology development.

4. The global and other asset ETF products with a low correlation with existing varieties in China are still lacking. There is an urgent need to complete the investment map of major asset allocation tools to meet the allocation needs of domestic professional investors. China is interconnected with more overseas markets to realize the demand of one-stop investment in multiple markets for professional investors through ETF.

5. By the end of 2020, the number of ETF investors in China is six million, and it is still small compared with 608 million mutual funds and stock investors. In addition to investors with securities’ accounts, a larger number of investors, including bank customers on the outside market, still don’t know how to participate in the ETF market. Which means the promotion, publicity and education of the ETF industry are insufficient, and also means the ETF industry of China is on the road to a big boom.

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