The stock exchange in China has recently marked a significant milestone with the stock-focused exchange-traded funds (ETFs) hitting a landmark scale, highlighting the unstoppable trend of passive investmentAs of October 8, the cumulative scale of the entire stock-based ETF market in China has for the first time surpassed 3 trillion yuan, according to data from Wind, reaching 3.06 trillion yuanThis impressive leap from 2 trillion yuan to 3 trillion yuan took just a little over two months, showcasing the rapid acceleration of investment trends.

In the year 2024, the public fund sector is witnessing an era of booming passive investment development, as new capital flows into the market via ETFsBy looking back at the history of development, it is clear that the speed at which stock ETFs have evolved in recent years has intensifiedChina's inaugural ETF, the Huaxia SSE 50 ETF, was launched on December 30, 2004. It took nearly 18 years for the market to surpass 1 trillion yuan, but only 1 year and 8 months to break the 2 trillion yuan mark in July this yearNow, less than three months later, we witness the milestone of exceeding 3 trillion yuan.

Tan Hongxiang, the deputy director of the Index Investment Department at Huatai-PB Fund, notes that this rapid development from ground zero to a 3 trillion yuan market cap has been a collective effort from various parties over the past two decadesInternationally, the global ETF market has seen swift growth since the 2008 financial crisis due to a gradual shift from active to passive investment strategiesThe explosion of ETFs as a financial product has been a crucial driver in the development of China's stock ETF market.

On a national level, the foresight and robust support of regulatory authorities played a critical roleEven though China's capital market lagged behind Western leaders like the UK and the US by several hundred years, the launch of its first ETF was only delayed by 11 years, illustrating a commendable commitment to product and system innovation.

Moreover, the competitive environment among market institutions has spurred a rapid increase in the number of stock-focused ETFs

Advertisements

The intense competition among fund managers has led to a vibrant array of products that empower each other, enhancing their usefulness and injecting plenty of energy into the ETF marketAdditionally, investors have come to accept stock ETFs, which differ significantly from traditional open-end fundsAfter an initial phase of introduction and adaptation, this emergent product has garnered acceptance due to its unique advantages.

Tan states, “From the perspective of the fund industry, stock ETFs serve as tool-like products that do not aim for excess returns, yet they exhibit significant economies of scale, offering fund companies a chance to carve out a relatively independent growth track, thus presenting new growth opportunities for the industry.”

As we delve deeper into the 3 trillion yuan stock ETF market, one striking phenomenon is the pronounced “Matthew Effect,” where the rich get richerData indicates that 51 fund companies currently offer active stock ETFs, with 7 of them managing over 100 billion yuan each.

Foremost is the Huaxia Fund, managing 72 stock ETFs worth approximately 630.4 billion yuan, which constitutes about 20.6% of the total ETF scaleFollowing closely is E Fund, with 64 ETFs managing 598.1 billion yuan and a market share of over 19.5%. Huatai-PB Fund occupies the third position with a management scale of 487.5 billion yuan, representing 15.9% share of the market.

Southbound Fund and Harvest Fund have both crossed the 200 billion yuan threshold with 271.9 billion yuan and 224.9 billion yuan respectivelyMoreover, Guotai Fund and GF Fund also feature ETFs exceeding 100 billion yuan, making their way into the “billion yuan club.” These seven companies collectively manage nearly 2.44 trillion yuan of ETFs, which accounts for nearly 80% of the total market scale, highlighting a high concentration that is on the rise.

Looking ahead at the development landscape of stock ETFs, while the head effects are pronounced, the vast ETF market still holds opportunities for newcomers

Advertisements

With China's economy undergoing transformation, new sectors such as artificial intelligence, renewable energy, and digital economy present new themes and directions for diversification and precision in ETF investment.

Furthermore, the current sampling methods and enhanced index ETFs employed are already exhibiting characteristics of active management, allowing fund managers who have not yet ventured into the ETF field to explore new avenues for market participation.

A further look reveals that 8 ETFs now each exceed 100 billion yuan in their individual scales, with a total of 35 ETFs surpassing 10 billion yuanThe Huatai-PB CSI 300 ETF continues to lead with a staggering management scale of 430.27 billion yuan, becoming the first stock ETF in China to surpass the 400 billion yuan mark.

As one of the pioneering products tracking the CSI 300 index, this ETF has consistently held an edge, particularly making remarkable leaps this yearAfter surpassing 200 billion yuan on March 12, it took only roughly six months to exceed 300 billion yuan on September 24, and shortly thereafter within just five trading days, its size surged by 100 billion yuan to reach the 400 billion yuan milestone.

Trailing closely is the E Fund CSI 300 ETF, which crossed the 200 billion yuan line on September 23, reaching 200.55 billion yuan as the second stock ETF to do so, with its scale rising to 278.87 billion yuan by October 8.

On October 8, several other ETFs managing over 170 billion yuan include the Huaxia and Harvest CSI 300 ETFs, along with the Huaxia SSE 50 ETFAdditionally, the E Fund ChiNext ETF, which has performed robustly, is gaining considerable investor attention, particularly as its scale surpasses 130 billion yuanThe Southern CSI 500 ETF and Huaxia STAR Market 50 ETF have also crossed the 110 billion yuan threshold.

Since the announcement of various favorable policies on September 24, the A-share market has rebounded significantly, leading a surge of investors to flock towards ETF products, culminating in an upward spiral of overall ETF scales

Advertisements

Advertisements

Advertisements