Chinese exchange-traded funds have experienced a remarkable surge in growth over the last five years. According to Morningstar, annual inflows to China ETFs have nearly quintupled over the past three years. The data from the American financial services firm shows that total yearly inflows to Chinese ETFs have skyrocketed from 127.2 billion Chinese yuan in 2021 to 387.2 billion yuan in 2022, and then further increased to 604.3 billion yuan in 2023. As a result, by the end of 2023, the total assets under management (AUM) of ETFs in China had more than doubled compared to the end of 2020, reaching 1.82 trillion yuan. The growth rate of annual assets under management for ETFs in China between 2018 and 2023 averaged an impressive 40%, with total AUM hitting record highs every year.
The broader China A-shares market has shown limited growth since 2022, with growth mainly seen in specific niche industries. Despite this, the Chinese ETF market has experienced explosive growth in the past few years. Wang from Morningstar mentioned that actively managed funds struggled to outperform in this environment, leading to a surge in the popularity of China’s ETF market. Total AUM doubled to 2 trillion yuan in less than three years, driven largely by institutional investors’ interest in broad-based index-tracking ETFs. Equity products have been particularly successful, accounting for 96% of the total 870 ETFs in China by the end of 2023. Inflows and annual AUM for China’s equity ETFs hit record highs, with 575.6 billion yuan in inflows in 2023 surpassing the total inflows from 2019 to 2022.
The Chinese ETF market has seen significant interest in the tech and communications sector, especially within the semiconductor industry. This has led to substantial investments in Morningstar’s sector equity tech and communications category. On the other hand, there have been net outflows in the sector equity financial and real estate category, indicating shifting investor preferences. Fixed income ETFs, which make up a small portion of the total ETF market, have seen slower growth in terms of product launches and AUM. Commodities ETFs, mainly consisting of gold ETFs, account for under 2% of the market. Leading ETF providers in China, such as China Asset Management, E Fund Management, and Huatai-PineBridge, have dominated the market with their extensive AUM.
The remarkable growth of Chinese exchange-traded funds over the last five years is a testament to the evolving investment landscape in China. With increasing inflows, particularly into equity ETFs, and a shift towards index-tracking strategies, the Chinese ETF market has experienced unprecedented growth. As the market continues to evolve, it will be interesting to see how sector trends and investor preferences shape the future of ETFs in China.
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