Broad-Based ETFs See 49% Inflow Growth in H1
This year has marked a significant milestone for the Exchange-Traded Fund (ETF) market in China, surpassing a remarkable total market value of 20 trillion yuan. The first half of 2024 has particularly been highlighted by a consistent inflow of funds into ETFs, amounting to approximately 461.7 billion yuan, with the overall trading volume reaching an astounding 14.7 trillion yuan. This surge is emblematic of a growing trend among investors who are increasingly favoring ETFs as a reliable investment vehicle.
The growth in the ETF market is being driven largely by the expanding investor base, with stock ETFs leading the pack in terms of trading volume, accounting for nearly 40% of total transactions. The mainstream broad-based ETFs have seen the most significant net inflow, and the number of billion-yuan bond ETF products has now climbed to four. This is indicative of a diversification in investor interests and the products available in the market.
According to the Shanghai Stock Exchange, the acceptance and recognition of indexed investment strategies among investors have paved the way for ETFs to play a more vital role. These funds are expected not only to attract medium- to long-term investments but also to facilitate real economic activities and meet the wealth management needs of the public. Looking ahead, the Exchange aims to diversify ETF offerings, enhance the supporting mechanisms for ETFs, and nurture a healthy ecosystem for these financial instruments.
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By the end of June 2024, the number of holders of ETFs in the Shanghai market reached approximately 6.58 million accounts, reflecting a 61% increase since the end of 2020. Institutional investors play a significant role in this market, holding over 1.3 trillion yuan worth of ETFs, which constitutes more than 70% of total holdings, an increase of 7 percentage points from the end of 2023, with an impressive growth of 31.8% in the total value of institutional holdings.
The trading perspective shows that the ETF market recorded a total transaction volume of 14.7 trillion yuan in the first half of the year, with non-cash ETFs accounting for 11.5 trillion yuan of that amount, both achieving historical highs on a year-on-year basis. Specifically, the total trading volume for Shanghai ETFs was about 11.8 trillion yuan, resulting in an average daily transaction of 1.008 billion yuan, reflecting a 12.6% increase compared to the previous year. Non-cash ETFs saw an even more substantial increase, with a total trading amount of 8.7 trillion yuan, averaging 741 million yuan per day, marking a substantial 24.3% increase from the last year.
When examining the distribution of trading volumes, it can be observed that there are 23 products across the market with daily transaction volumes exceeding 1 billion yuan, with 20 of those listed on the Shanghai market. Remarkably, 10 of these high-volume products are broad-based ETFs, which dominate the trading activity. Products like the CSI 300 ETF and the SSE 50 ETF have seen increased trading volumes, while there are five each of bond and cross-border ETFs in this category as well. Four of the products have achieved daily transaction volumes surpassing 5 billion yuan, with short-term bond ETFs and government bond ETFs setting new records.
Stock ETFs continue to lead in transaction volumes, maintaining a significant share of nearly 40%. Meanwhile, the single-product transactions in bond ETFs have become the highest, with leading products averaging daily trades near 10 billion yuan. Cross-border ETFs are experiencing the fastest growth, with their share of total transactions increasing from 16% to 19%.
Broad-based ETFs have consistently drawn in more investments, increasing in size by 49% to reach 1.24 trillion yuan compared to the end of 2023. The Shanghai market alone accounted for 950.9 billion yuan of that figure. Their daily average transaction volume stands at 316 million yuan, with 229 million yuan attributed to the Shanghai market—an increase of 41% from the prior year, demonstrating significant interest in major products that are now averaging over 4 billion yuan in daily transactions.
In the first half of 2024, the number of products exceeding 10 billion yuan in size rose from one at the end of 2023 to four. The overall scale of bond ETFs has grown to 109.9 billion yuan, with the Shanghai market holding over 91.2 billion yuan, representing more than 80% of the total. The average daily trading volume for bond ETFs rose from 14.7 billion yuan to 20.5 billion yuan, with both short-term bond ETFs and government bond ETFs exceeding 6 billion yuan in average transactions.
Notably, the transaction volume for dividend ETFs has more than doubled. In the first half of 2024, strategy ETFs, primarily represented by dividend ETFs, achieved a total scale exceeding 70 billion yuan, with institutional holdings surpassing 50%. There has been a prominent appearance of insurance institutions among the top ten holders of leading products during the second quarter of 2024. Specifically, the scale of Shanghai's dividend-themed ETFs increased by over 56% to reach 56.7 billion yuan, with transaction volumes rising over 120%.
The continuous inflow of funds to ETFs over the past three years has been noteworthy, with broad-based ETFs seeing the most substantial net inflow. In the first half of 2024, domestic non-cash ETFs accumulated a net inflow of 461.7 billion yuan, representing 80% of the entire net inflow for 2023, with the Shanghai market contributing 352.8 billion yuan. Since 2021, the cumulative net inflow into ETFs has exceeded 1.5 trillion yuan.
Specifically, stock-type ETFs maintained the trend set in 2023, attracting a net inflow of 388.6 billion yuan. Bond ETFs brought in a net inflow of 23.4 billion yuan, equating to the totals for the entire year of 2023. Commodity ETFs and strategy ETFs reported net inflows that reached 3.5 times and 2 times, respectively, compared to their totals for all of 2023.
Looking at the funds with the highest net inflows, it is evident that eight of the top ten ETFs fall into the broad-based category, with one each belonging to the bond market (the government bond ETF) and gold ETFs. Furthermore, examining the market maker landscape, the Shanghai ETF market enjoys a high level of market maker coverage. By June 2024, there were 33 market makers in total, comprised of 19 primary and 14 general market makers. Of the ETFs in the Shanghai market, 557 products, or 98% of the total ETF count, were equipped with market makers, an increase of 33 since the end of 2023.
In the first half of 2024, the trading volume of products with market makers accounted for 29% of the total trading volume of all market-making products, showing an increase of about 3% compared to the previous year. On average, the Shanghai market has 6.52 market makers assigned to each ETF. The ETFs with the highest number of market makers are the CSI 1000 ETF and the CSI 300 ETF from Huaxia, both with 23 market makers each. There are more than 100 ETF products in the Shanghai market covered by ten market makers, with the top five market makers covering 56% of the products and the top ten covering 84%, indicating a high concentration in ETF market-making activities.
The market-making mechanism has demonstrably enhanced the trading activity of the products. In the first half of 2024, the average turnover rate for ETFs with market makers was 4.9 times higher than for those without. The presence of market makers has reduced the relative bid-ask spread; the average bid-ask spread for ETFs without market makers was 0.144%, while it is only 0.1002% for those with market makers. Additionally, this mechanism effectively decreased the price impact cost. The buying impact cost for ETFs in the Shanghai market without market makers was 0.87%, with a selling impact cost of 1.35%. In contrast, ETFs with market makers exhibited buying and selling impact costs of only 0.07% each. Such figures clearly highlight the advantages provided by market makers in promoting liquidity and reducing transaction costs in the ETF landscape.