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China’s exchange-traded funds have seen “spectacular” growth over the past five years, with inflows hitting new highs, according to data from Morningstar.
“Annual inflows into China ETFs have surged nearly fivefold over the past three years,” Morningstar analyst Wang Wanda said in a June report.
Total annual inflows into Chinese ETFs increased from 127.2 billion yuan ($17.49 billion) in 2021 to 387.2 billion yuan in 2022, according to data provided by the U.S. financial services firm. RMB.
As of the end of last year, the total assets under management of China’s ETFs had more than doubled from the end of 2020, reaching 1.82 trillion yuan.
The Morningstar report pointed out: “From 2018 to 2023, the average annual growth rate of China’s ETF assets under management reached an astonishing 40%, and the total management scale hit a record high every year.”
The financial services firm said China’s A-share market has been “tepid” overall since 2022, with only bright spots in certain niche industries.
“The growth of the Chinese ETF market has been explosive over the past few years,” Wang told CNBC.
Against this background, it has become challenging for actively managed funds to outperform the market, promote the development of China’s ETF market, and double total assets under management to 2 trillion yuan in less than three years.
“Investment from institutional investors poured into broad-based index tracking ETFs, which is the most important part of the rapid inflow of China’s ETFs,” Wang added.
The ‘huge appeal’ of equity ETFs
Stock products in particular have gained “huge traction” over the past three years, accounting for an overwhelming 96% of the total 870 ETFs in China as of the end of 2023.
China stock ETF inflows and annual assets under management also hit record highs, Wang wrote. The full-year inflow in 2023 alone will reach 575.6 billion yuan, exceeding the total inflow from 2019 to 2022.
In addition, Wang added that against the backdrop of the booming semiconductor industry, a large number of assets have been directed into what Morningstar calls the industrial equity technology and communications category.
Instead, the report showed net outflows from the equity finance and real estate categories.
Fixed income ETFs, which account for 4% of the total ETF volume, have been slower to develop in terms of product launches and AUM growth. Commodity ETFs (mainly gold ETFs) account for less than 2%.
Morningstar pointed out that China’s ETF market tends to be concentrated in the hands of leading providers such as China Asset Management Company, E Fund Management Company and Huatai-PineBridge Fund, which are the three largest ETF providers in terms of asset management scale.
— CNBC’s Evelyn Cheng contributed to this report.
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