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According to Morningstar research, the Chinese ETF industry has grown strongly in recent years, supported by record inflows into equity strategies and a decline in the adoption of active funds.
The research firm’s latest China ETF Asset Flows report shows that total annual inflows into Chinese ETFs will reach 604.3 billion yuan ($83.3 billion) in 2023.
The amount is nearly five times the inflow of 127.2 billion yuan in 2021 and nearly double the 387.2 billion yuan in 2022.
Data also shows that this marks a complete turnaround from Rmb5.1 billion in 2019 and Rmb41.8 billion in outflows in 2020.
This article was previously published by Ignites Asia, a title of the FT Group.
According to the report, strong inflows into Chinese ETFs helped the sector realize 1.82 trillion yuan in assets by the end of December.
The researchers noted that between 2018 and 2023 there was a “staggering” average annual growth of 40 percent in total assets, noting that the “explosive” growth came amid the “tepid” performance of the broad China A-share market, which dragged down actively managed funds.
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According to Wanda Wang, research manager at Morningstar and author of the report, Chinese investors instead flocked to thematic ETF products, such as those focused on alternative energy or technology.
She said fund cost reforms by regulators have also led Chinese fund managers to dramatically cut fees for large, broad-based ETFs, attracting further inflows.
The total number of ETFs in China had grown to 870 by the end of 2023, the report said. Equity products made up 96 percent of all ETFs, at 834. There were only 17 bond ETFs, 17 commodity ETFs and two convertibles ETFs on the market.
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Equity ETFs made up the largest share of total assets and were responsible for the majority of flows into the space. These products realized Rmb1.72 trillion in total assets last year, representing 94 percent of the sector’s total.
Their growth largely reflected the development of the overall ETF industry. Equity ETFs “gained huge traction” over the three years, with annual inflows of Rmb575.6 billion.
Morningstar attributed this to strong buying by institutional investors of broad index-tracking ETFs, such as the Huatai-PineBridge CSI 300 ETF, E Fund Seeded CSI 300 ETF, ChinaAMC China 50 ETF, Harvest CSI 300 ETF and ChinaAMC CSI 300 ETF.
The ETF industry in China is also concentrated in the leading providers. The top three asset managers in this sector — China Asset Management, E Fund Management and Huatai-PineBridge Fund Management — have topped the rankings for the past three years.
At the end of December, they held about half, or 46 percent, of the total market share, with ChinaAMC leading the way with Rmb392.2 billion in total assets, accounting for 21.6 percent of the market.
The manager recorded Rmb152.4 billion in subscriptions during the year, representing a 67 percent growth in inflows compared to 2022.
This was followed at a distance by E Fund with Rmb256.9 billion in total assets last year, 14.1 percent of the total market share. Huatai-PineBridge had Rmb193.8 billion in assets, representing 10.7 percent of the ETF market.
*Ignites Asia is a news service published by FT Specialist for professionals working in the asset management industry. Trials and subscriptions are available at ignitesasia.com.