SSE Deputy General Manager Wang Hong: Build an ETF Ecosystem to Support the New Development of the Asset Management Industry

Translated from Xinhua Finance

Next, the Shanghai Stock Exchange (SSE) will focus on "cultivating and expanding patient capital" and "establishing a fast approval channel for ETFs to promote the development of index-based investment". With such efforts, it aims to further improve the index system, expand ETF connectivity, and continuously perfect ETF supporting mechanisms, to drive the vigorous development of index-based investment.

(Reported by Liu Yulong, Chen Yunfu, and Li Ting from Xinhua Finance on October 27th in Shanghai) Wang Hong, Deputy General Manager of the Shanghai Stock Exchange (SSE), stated on October 27th during the Global Asset Management Forum 2024 Shanghai Suhewan Conference that ETF products of exchanges are increasingly becoming an important component of the asset management industry globally. As of August, the total scale of the global ETF market has surpassed USD 13 trillion, with an average compound annual growth rate of over 20% over the past nearly 20 years. Two decades ago, the SSE 50 ETF was officially listed as the first product. As the index-based investment market has boomed in recent years, ETFs have become a crucial asset management tool.

Wang Hong stated that SSE will earnestly implement the visions outlined at the Third Plenary Session of the 20th CPC Central Committee and the guiding principles of the State Council’s Guideline on Strengthening Supervision, Forestalling Risks and Promoting High-Quality Development of the Capital Market in the next step. The focus will be on "cultivating and expanding patient capital" and "establishing a fast approval channel for ETFs to promote the development of index-based investment". With such efforts, it aims to further improve the index system, expand ETF connectivity, and continuously perfect ETF supporting mechanisms, to drive the vigorous development of index-based investment.

—The construction of the index-based investment reaches new heights, and market vitality has been continuously stimulated

Wang Hong noted that in recent years, the domestic ETF industry has experienced rapid development, exhibiting a trend of "a hundred boats competing in the current" and "a thousand sails setting out". Currently, there are over 990 ETF products in the SSE and the Shenzhen Stock Exchange, with more than 100 new ETF products launched each year. Among these, the SSE has about 580 ETFs, including stock ETFs, bond ETFs, and cross-border ETFs. At present, eight broad-based index ETF products in the domestic market have surpassed the RMB 100 billion mark, with the Huatai-Pinebridge CSI 300 ETF recently exceeding RMB 400 billion in scale. In contrast, during the same period last year, there was only one product in the entire market with a scale surpassing the RMB 100 billion mark. In recent years, the concept of index-based investment has gained increasing recognition among investors.

First, the trading activity of ETFs has reached a new level. In the first three quarters of 2024, the total scale of the domestic ETF market exceeded RMB 3 trillion, only nine months after crossing the RMB 2 trillion mark. Among these, the average daily turnover of ETFs in the SSE topped RMB 100 billion, with a total scale of RMB 2.6 trillion, maintaining a leading position in Asia.

Second, the number of investors in the ETF market has been growing. As the concept of index-based investment becomes increasingly ingrained, ETFs have gradually become an important choice for investors to allocate core assets, and medium- and long-term capital entering the market driven mainly by allocation needs have been increasing. As of now, the number of ETF holders in the SSE has exceeded 8 million, a 100% increase since the end of 2020. Among them, the positions of institutional investors in the SSE ETF market reached RMB 1.9 trillion, accounting for more than 70% of the total.

Third, the liquidity of leading ETF products has been improving. In recent years, the scale advantages of leading products have become increasingly prominent. In the first three quarters of the year, there were a total of 23 products with an average daily turnover of over RMB 1 billion. Among these, 10 broad-based index ETFs ranked highest in liquidity across all types. For leading products such as CSI 300 ETF and SSE 50 ETF, the turnover was further increased.

Fourth, ETF dividends have enhanced investors' sense of gain. In recent years, the SSE has consistently guided ETFs to establish stable dividend mechanisms. In the first three quarters, 39 ETFs in SSE distributed dividends totaling RMB 11 billion. Recently, the first quarterly mandatory dividend ETF product—the Morgan CSI A50ETF—was launched, further assisting investors in better practicing the long-term investment philosophy.

—the SSE continues to expand the medium- and long-term investment force and provides multidimensional support for the development of index-based investment

According to Wang Hong, in recent years, the SSE has taken multiple measures to keep driving the high-quality development of the ETF market.

First, the SSE adheres to a systematic approach to promote the ecological development of indices. Recently, the SSE formulated the Three-Year Action Plan for Index Business (2024-2026), focusing on enriching index compilation, improving the index-based investment ecosystem, and gradually building an index risk management system. Additionally, the SSE has developed various sub-plans for each index system to ensure the effective implementation of related measures. Notably, this year has seen positive results in promoting the real-time release of the SSE Total Return Index, which provides a more comprehensive reflection of the overall investment returns of SSE.

Second, the SSE has promoted the broad-based index ETFs to advance in quality and strength. Broad-based index ETFs continue to attract significant capital inflows. In the first three quarters of this year, a net inflow of RMB 700.6 billion was made to broad-based index ETFs in the SSE, with 140 products and a combined scale of RMB 1.6 trillion, accounting for 77% of the total scale of stock ETFs in SSE. Since the beginning of this year, the SSE has successively launched more broad-based index ETF products such as CSI A50 and CSI A500, focusing on reflecting the industry balance in terms of samples and achieving full coverage of important broad-based indices.

Third, the SSE has developed multi-layered and widely-covered index and product systems. In terms of product classification, broad-based index, industry index, dividend index, and cross-border index products of the SSE are progressing simultaneously. The SSE has been making greater efforts to serve national strategies, focusing on enriching the STAR Market index offerings, providing investors with more diverse observation dimensions and investment targets, and enhancing positive interactions with the real economy.

—ETF has a promising future and is expected to provide new impetus for the development of the wealth management industry

Wang Hong stated that the next step for SSE will be to earnestly implement the visions outlined at the Third Plenary Session of the 20th CPC Central Committee, the guiding principles of the State Council’s Guideline on Strengthening Supervision, Forestalling Risks and Promoting High-Quality Development of the Capital Market, and a series of work arrangements proposed in the Guiding Opinions on Promoting the Entry of Medium- and Long-Term Funds into the Market issued by the General Office of the Central Financial Commission and the China Securities Regulatory Commission in September.

First, the SSE will further improve the index system and promote the vigorous development of index-based investment. The broad-based index system and the layout of broad-based index ETF products will be continuously enriched to provide high-quality investment targets for medium- and long-term funds entering the market. The SSE is about to further enhance the variety of strategy index ETFs, promoting the multi-layered development of enhanced index as well as high-dividend, low-volatility strategy ETFs to enrich choices for investors. Aligning with major national strategic layouts and the goals of capital market reform and focusing on technology finance, green finance, inclusive finance, pension finance, and digital finance, the SSE will contribute to the sustainable development of related ETF products. It is expected to also actively promote the implementation of REITs indexed products.

Second, the SSE is to thoroughly put into practice the Eight STAR Market Measures to support the development of new quality productive forces. The SSE will implement the Eight STAR Market Measures, further enriching the indices and ETF varieties in the STAR Market, guiding funds to consistently flow into the "hard & core technology" industries and strategic emerging sectors, thereby supporting the development of new quality productive forces. In terms of supporting mechanisms, the incorporation of STAR Market ETFs into the fund trading platform for transfer will be accelerated; efforts will be made to incorporate STAR Market ETFs into the after-hours fixed-price trading mechanism, to facilitate trading convenience.

Third, the SSE will expand ETF connectivity to support the high-level opening up of the capital market. The SSE plans to further expand and optimize the cross-border connectivity mechanism of the capital market, gradually expand the categories of ETFs included in the connectivity framework, deepen cooperation with the fund markets of Belt and Road partner countries based on existing ETF connectivity, and enrich the models of cross-border cooperation in the fund market. It is expected to strengthen communication and exchanges with overseas markets and enhance the international influence and competitiveness of domestic indices and products.

Fourth, the SSE will continuously improve the supporting mechanisms for ETFs and collaborate with all market participants to build a healthy investment environment. The SSE will continuously study and promote the normalization of ETF collective subscription services, optimize the market maker mechanism and after-hours trading systems to fully stimulate market vitality and create a favorable investment environment, establish a "long-term capital for long-term investment" market system, and attract more medium- and long-term capital into the market through ETFs.

"Over the past two decades, China's ETF market has grown out of nothing and become an important tool for building a multi-layered capital market system." Wang Hong said that looking forward to the future, the SSE will adhere to its original intention of serving investors and the real economy under the overall guidance of the China Securities Regulatory Commission and further cultivate a sound ETF ecosystem. The goal is to develop the SSE ETF market into a hub product with greater scale and higher quality for wealth management. It is expected that everyone will work together to create an institutional environment of "long-term funds for long-term investment", focus on cultivating and expanding patient capital, do a good job in technology finance, green finance, inclusive finance, pension finance, and digital finance, optimize the capital market structure, and collectively reinforce the foundation for the smooth operation and healthy development of the capital market.

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