The SSE ETF Market Receives Net Capital Inflow for Three Consecutive Years as Domestic and Overseas ETF Investment Flourish

Translated from Shanghai Securities News-www.cnstock.com

With the rise of the passive investment concept, improved policy support and regulatory environment, and rising demand for residents' asset allocation, capital inflow has accelerated into the exchange-traded fund (ETF) market.

Statistics show that in the first half of 2024, more than RMB 450 billion was poured into ETF market of the Shanghai Stock Exchange (SSE), accounting for 80% of the annual net inflow in 2023. In the past few years, the net inflow of the SSE ETF market has increased year by year. Since 2021, the cumulative net capital inflow has exceeded RMB 1.2 trillion.

By type, the net inflow of stock ETFs reached RMB 388.6 billion in the first half of this year, accounting for 84.2% of the total net inflow; it was followed by bond ETFs, with a net inflow of RMB 23.4 billion, while the semi-annual net inflow of strategy ETFs doubled that of 2023. Among the top 10 ETFs with net inflow, there were 8 broad-base ETFs, 1 PFB ETF and 1 gold ETF.

Starting from the fourth quarter of 2023, state-owned companies have made several moves to increase investment in the ETF market. Central Huijin Investment Ltd. announced twice in December 2023 and February 2024 that it would expand the scope of ETF holding increase, and stated that it would continue to step up efforts and expand the scale of its holding increase. Guoxin Investment Co., Ltd. successively announced to increase its holdings of CSI Guoxin Central-SOEs Technology Index Fund and subscribe for the IPO shares of CSI China Reform Hong Kong Connect Central-SOEs High Dividend Yield Index ETF, taking a clear-cut stand to support technological innovation and value investment, guiding the direction of market investment. In addition, multiple positive factors such as self-purchase by fund companies and repurchase by listed companies are accumulating, with incremental capital flowing to the market one after another.

The ETF market welcomed huge capital inflow as its ammunition. In the first half of 2024, the total turnover of SSE ETF market reached RMB 11.8 trillion, ranking 1st in Asia and 3rd in the world; while its total scale exceeded RMB 2 trillion, ranking 2nd in Asia and 8th in the world. The trading activity of the SSE ETFs reached a new level, with an average daily turnover of RMB 100.8 billion, up 12.6% from the same period last year and an average daily turnover rate of 5.68%, ranking first in Asia.

The layout of ETF products has been increasingly improved, and a benign market structure has gradually taken shape. As of the end of June 2024, domestic ETFs had invested in a variety of asset categories such as stocks, bonds, currencies, commodities and foreign stocks. The scale of stock ETFs was RMB 1.81 trillion, accounting for 73%; that of cross-border ETFs was RMB 316.6 billion, accounting for 13%; that of currency ETFs was RMB 185.9 billion, accounting for 8%; that of bond ETFs was RMB 109.5 billion, accounting for 4%; and that of commodity ETF was RMB 52.7 billion, accounting for 2%.

Since 2024, ETF products have increasingly become high-quality tools for investors' asset allocation due to their unique advantages in diversifying risks, and index-based investment has become a long-term trend.

The global ETF market has achieved record net inflows for five consecutive years. By the end of June 2024, the total assets of global listed ETFs (including ETP) reached USD 13.17 trillion, an increase of 13.44% over the end of 2023, and the average annual compound growth rate in the past 20 years exceeded 20%. In June this year alone, the global ETF industry achieved a net inflow of USD 136.17 billion for the 61st consecutive month, bringing the year-to-date net inflow to a new high of USD 730.36 billion.

The net inflow of ETFs in the U.S. market leads the world, with a net inflow of USD 82.84 billion in June 2024. Since the beginning of the year, the net inflow has reached USD 440.41 billion, and the total industry scale has reached USD 9.18 trillion, accounting for nearly 70% of the global ETF market scale. In the European market, the monthly inflow of ETFs reached USD 21.51 billion in June this year, achieving a net inflow for the 21st consecutive month; the total net capital inflow during the year reached USD 103.93 billion, the second-highest on record. In the Asia-Pacific market, Japanese ETF industry had a net inflow of USD 386 million in June and its total scale was USD 561.37 billion by the end of this June.

Referred from the developing law of capital markets in developed countries, with the continuous increase in the proportion of domestic institutional investors and the improvement in the effectiveness of the stock market, index funds, especially ETF products, will gradually become the first choice for asset allocation by institutional and retail investors due to their advantages of large scale, low fee rate, good liquidity and distinct risk-return characteristics. With the gradual recovery of A-share market valuation, investors' demand for ETFs may increase significantly, which is expected to further promote the scale and market activity of domestic ETFs.

The Shanghai Stock Exchange will earnestly implement the relevant requirements of State Council’s guidelines on strengthening Regulation, forestalling risks and promoting high-quality development of the capital market, under the overall guidance of China Securities Regulatory Commission, continuesly enriching ETF types, optimizing ETF supporting mechanisms and cultivating a good ecosystem for ETFs, so as to further strengthen and expand the ETF market, better meet residents' needs for asset allocation and serve the development of the real economy in China.

The above information is provided for reference purposes only and does not constitute investment advice