According to the latest data, the Chinese ETF market has experienced explosive growth, with inflows increasing by five times over the past three years.
According to Morningstar's data, the trading fund (ETF) market in China has seen astonishing growth over the past five years, with continuous inflows reaching new highs.
Morningstar analyst Wanda Wang stated in a report in June: "Over the past three years, annual inflows of Chinese ETFs have almost quintupled."
According to data provided by this American financial services company, annual inflows of Chinese ETFs increased from CNY 127.2 billion ($17.49 billion) in 2021 to CNY 387.2 billion in 2022. By 2023, this figure will reach CNY 604.3 billion.
As of the end of last year, the total assets under management (AUM) of Chinese ETFs had more than doubled from the end of 2020 to CNY 1.82 trillion.
"From 2018 to 2023, the annual growth rate of Chinese ETFs' AUM has averaged a stunning 40%, and the total AUM has hit a new historical high every year," according to the Morningstar report.
The firm pointed out that since 2022, the overall performance of China's A-share market has been "flat" and has only shown highlights in certain specific industries.
"The growth of the Chinese ETF market has been explosive in recent years," Wang said in an interview with CNBC.
Against this backdrop, actively managed funds have become challenging, which has fueled the development of China's ETF market and doubled its total AUM in less than three years to CNY 2 trillion.
"Institutional investors have poured funds into a wide range of index-tracking ETFs, which is the most important part of the rapid inflow of Chinese ETFs," Wang added.
"Huge traction" of stock ETFs
In particular, stock products have gained "huge traction" over the past three years, accounting for 96% of the total 870 ETFs in China by the end of 2023.
Wang wrote that inflows and annual AUM of Chinese stock ETFs have also hit historical highs, with annual inflows alone reaching CNY 575.6 billion in 2023, exceeding the total inflows from 2019 to 2022.
In addition, assets have flowed into industry stock technology and communication categories, driven by the booming semiconductor industry, while financial and real estate industry stock categories have seen net outflows, according to the report.
Fixed income ETFs account for 4% of total ETFs and have developed relatively slowly in terms of product launches and AUM growth. Commodity ETFs are mainly gold ETFs and account for less than 2%.
Morningstar pointed out that China's ETF market is often concentrated in leading providers, such as Huaxia Fund Management Company, E Fund Management Co. Ltd., and China Asset Management Co. Ltd., which are the top three ETF providers by AUM.