Chinese exchange-traded funds (ETFs) have experienced significant growth over the past five years, with inflows reaching unprecedented levels, according to a recent report by Morningstar.
Morningstar analyst Wanda Wang highlighted in a June report the remarkable surge in annual inflows to China ETFs, which nearly quintupled over the past three years. Specifically, total yearly inflows soared from 127.2 billion Chinese yuan ($17.49 billion) in 2021 to 387.2 billion yuan in 2022, further increasing to 604.3 billion yuan in 2023.
By the end of last year, the assets under management (AUM) of ETFs in China had more than doubled compared to the end of 2020, reaching 1.82 trillion yuan.
“The annual growth rate of ETFs’ assets under management in China averaged an impressive 40% between 2018 and 2023, consistently setting new record highs,” the Morningstar report stated.
Despite a generally subdued performance in the broader China A-shares market since 2022, certain niche industries have shown resilience, according to the financial services firm.
Morningstar emphasized the “explosive” growth of the Chinese ETF market in recent years, noting that this growth has posed challenges for actively managed funds to outperform. This trend has significantly boosted the total AUM of China’s ETF market, reaching 2 trillion yuan in less than three years.
“Institutional investors have significantly contributed to the influx of investments into broad-based index-tracking ETFs, which have been pivotal in driving rapid inflows into China’s ETF market,” Wang commented.
The report highlighted that equity ETFs have particularly garnered substantial interest, constituting 96% of the total 870 ETFs in China by the end of 2023. Annual inflows into equity ETFs in 2023 alone amounted to 575.6 billion yuan, surpassing the cumulative inflows from 2019 to 2022.
Furthermore, Wang pointed out that the technology and communications sectors within the equity ETF category saw significant inflows, buoyed by the booming semiconductor sector. Conversely, sectors such as financials and real estate experienced net outflows during the same period.
Fixed income ETFs, representing 4% of total ETFs, have shown slower development in terms of product launches and AUM growth, while commodities ETFs, primarily gold ETFs, accounted for less than 2% of the market.
Morningstar underscored that the Chinese ETF market is dominated by leading providers such as China Asset Management, E Fund Management, and Huatai-PineBridge, which collectively hold the largest AUM share in the sector.
