Chinese ETFs Experience Explosive Growth, Surging Inflows and Record High AUM

In the past five years, the Chinese exchange-traded funds (ETFs) market has experienced remarkable growth, as reported by Morningstar. Analyst Wanda Wang revealed that the annual inflows to China ETFs surged nearly fivefold in the last three years. Specifically, the total yearly inflows to Chinese ETFs expanded from 127.2 billion Chinese yuan ($17.49 billion) in 2021 to 387.2 billion yuan in 2022, and further increased to 604.3 billion yuan in 2023.

Rapid Expansion of Assets Under Management

By the conclusion of the previous year, 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. Morningstar's report highlighted that between 2018 and 2023, the annual AUM growth rate of ETFs in China averaged an impressive 40%, leading to record high total AUM each year.

Market Performance and Trends

Despite the overall tepid performance of the broader China A-shares market since 2022, certain niche industries have exhibited strong growth, according to the financial services firm. Wang mentioned that the growth of the Chinese ETF market has been explosive in recent years and actively managed funds have faced challenges in outperforming, consequently driving the expansion of China's ETF market, resulting in a doubling of the total AUM to 2 trillion yuan in less than three years.

Equity ETF Dominance

Equity products have notably gained significant traction, comprising a dominant 96% of the total 870 ETFs in China by the end of 2023. China's equity ETFs have experienced record-high inflows and annual AUM, with annual inflows in 2023 alone surpassing the total inflows from 2019 to 2022, amounting to 575.6 billion yuan.

Sectoral Trend and Investment Flows

Supported by a thriving semiconductor sector, substantial assets have flowed into Morningstar's sector equity tech and communications category. Conversely, there were net outflows in the sector equity financial and real estate category. Fixed income ETFs, representing 4% of total ETFs, showed slower development in terms of product launches and AUM growth. Additionally, commodities ETFs, predominantly gold ETFs, accounted for under 2% of the market.

Morningstar emphasized that the ETF market in China is concentrated among leading providers such as China Asset Management, E Fund Management, and Huatai-PineBridge, which are the three largest ETF providers by AUM.