ETFs
Capital flows into Chinese ETFs have increased fivefold in three years, according to Morningstar
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Chinese exchange-traded funds have seen “stunning” growth over the past five years, with inflows regularly hitting new highs, according to Morningstar.
“Annual flows into China ETFs have increased nearly fivefold over the past three years,” Morningstar analyst Wanda Wang said in a June report.
According to data provided by the US financial services company, total annual flows into Chinese ETFs increased from 127.2 billion Chinese yuan ($17.49 billion) in 2021 to 387.2 billion yuan in 2022. In 2023, the figure reached 604.3 billion yuan.
By the end of last year, the total assets under management (AUM) of ETFs in China more than doubled from the end of 2020, reaching 1.82 trillion yuan.
“Between 2018 and 2023, the annual growth rate of ETF assets under management in China averaged 40%, and total assets under management reached record highs each year,” the Morningstar report said.
The broader China A-share market has been “lukewarm” since 2022, with bright spots only in some niche sectors, the financial services firm said.
“The growth of China’s ETF market in recent years has been explosive,” Wang told CNBC.
Against this backdrop, it has become difficult for actively managed funds to outperform, helping to propel China’s ETF market and double total assets under management to 2 trillion yuan in less than three years.
“Institutional investors’ investment inflows have been into broad index ETFs, which account for the largest share of rapid ETF inflows in China,” Wang added.
Equity products in particular have gained “immense traction” over the past three years, accounting for 96% of the total 870 ETFs in China by the end of 2023.
The annual inflows and assets under management of Chinese stock ETFs also hit record highs, Wang wrote. The annual inflows in 2023 alone reached 575.6 billion yuan, which exceeds the total inflows between 2019 and 2022.
Additionally, on the back of a booming semiconductor sector, large amounts of assets have flowed into Morningstar’s technology and communications sector equity category, Wang added.
Conversely, net outflows were observed in the financial stocks and real estate sectors, according to the report.
Bond ETFs, which account for 4% of total ETFs, saw slower growth in terms of product launches and assets under management. Commodity ETFs, which were largely gold ETFs, accounted for less than 2%.
Morningstar noted that the ETF market in China tends to be concentrated around major providers like China Asset Management, E Fund Management and Huatai-PineBridge, which are the three largest ETF providers by AUM.
—CNBC’s Evelyn Cheng contributed to this report.