Chinese ETF assets see ‘explosive’ growth

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China’s exchange-traded fund (ETF) industry has seen strong growth in recent years, driven by record flows into equity strategies and amid declining adoption of active funds, according to a Morningstar study.

Total annual flows into Chinese ETFs reached RMB604.3 billion ($83.3 billion) in 2023, according to the research firm’s latest China ETF Asset Flows report.

This figure is almost five times higher than the RMB 127.2 billion inflows recorded in 2021 and almost double the RMB 387.2 billion in 2022.

This also marks a complete turnaround from RMB5.1 billion in 2019 and RMB41.8 billion in outflows in 2020, the data showed.

This article was previously published by Ignite Asiaa title belonging to the FT group.

According to the report, strong inflows into Chinese ETFs helped the industry realize RMB 1.82 trillion in assets as of the end of December.

The researchers noted that there had been a “staggering” 40% average annual growth rate in total assets between 2018 and 2023, noting that the “explosive” growth came amid “tepid” performance from China’s vast A-share market, which dragged down actively managed funds.

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Chinese investors have instead turned to thematic ETF products, such as those focused on alternative energy Or technologyaccording to Wanda Wang, research director at Morningstar and author of the report.

Regulator-directed fund fees reforms have also led Chinese fund companies to to cut fees on large, broad-coverage ETFs, which further attracted inflows, she said.

According to the report, the total number of ETFs in China had increased to 870 by the end of 2023. Equity products accounted for 96% of all ETFs, or 834. There were only 17 bond ETFs, 17 commodity ETFs and two convertible ETFs on the market.

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Equity ETFs made up the bulk of total assets and accounted for the majority of inflows into the industry. These products generated total assets of RMB 1.72 trillion last year, accounting for 94% of the industry total.

Their growth largely reflects the development of the entire ETF industry. Equity ETFs have “gained huge ground” over the past three years, with annual inflows of RMB 575.6 billion.

Morningstar attributed this to strong purchases of broad-based index ETFs by institutional investors, 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.

China’s ETF industry is also concentrated on major providers. The three major asset managers in this sector, China Asset Management, E Fund Management and Huatai-PineBridge Fund Management, have been at the top of the ranking for the past three years.

They accounted for about half, or 46%, of the total market share as of the end of December, with ChinaAMC leading the way with RMB392.2 billion in total assets to hold 21.6% of the market.

The manager recorded RMB 152.4 billion in subscriptions during the year, representing a 67% growth in inflows compared to 2022.

It is followed distantly by E Fund with RMB256.9 billion in total assets last year, accounting for 14.1% of the total market share. Huatai-PineBridge held RMB193.8 billion in assets, accounting for 10.7% 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.

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