The growth journey of Exchange-Traded Funds (ETFs) has been nothing short of remarkable since the inception of the first stock ETF in 2005. What began as a fledgling market slowly burgeoned into a substantial investment vehicle within just 18 years, reaching a total scale of 10 trillion RMBHowever, it took only two more years to double that figure to 20 trillion RMB, highlighting a spirited reception to ETFs within the dogged landscape of the Chinese A-share market.

The recent successful fundraising of 10 different China Securities A500 ETFs underlines this newfound enthusiasm towards ETFs as a viable investment optionAccording to data compiled by East Money's Choice, as of September 23, 2024, there are approximately 316 different stock ETFs available, corresponding to the same number of indices, with 16 of these being newly introduced this year

The initial fundraising for these new products has totaled over 43.8 billion RMB, with the bulk,—approximately 83.33% or 36.5 billion RMB—coming from the fundraising of the A50 and A500 ETFs.

In a parallel surge, there has been a marked increase in cross-border ETF offeringsThe year 2024 has already seen the introduction of 8 new ETFs amounting to 6.5 billion RMB in initial funds raisedNotably, those tracking the National State-owned Enterprises Index and the FTSE Arabia Index have demonstrated particularly strong appeal, garnering 3.4 billion RMB and 1.2 billion RMB respectivelyThe success in attracting such substantial capital towards these new products reflects the regulatory support and the agility of index compilation institutions alongside public fund companies in seizing market opportunities.

The influx of mid to long-term capital has been a significant driving force behind the uplift of stock ETFs, successfully pushing their scale to surpass 20 trillion RMB

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Historical data reveals that the climb from zero to 10 trillion took nearly two decades, while the leap to 20 trillion was completed in a mere two years—a noteworthy feat considering the backdrop of the A-share market's usual hurdles.

On September 24, at a press conference, Wu Qing, a notable figure in the sector, indicated plans to further streamline the registration process for equity funds and actively promote innovation around broad-based ETFsHe emphasized the goal of introducing more products including those focused on medium and small-cap shares, particularly targeting sectors like the ChiNext and Science and Innovation boardsHis vision succinctly aligns with the strategic objectives of better serving investors and supporting national initiatives aimed at advancing a new type of productive capacity.

Wu also shared figures indicating that by August 2024, professional institutional investors—including open-ended fund companies, insurance entities, and various pension funds—held close to 15 trillion RMB of the circulating A-share market value

This represents more than a twofold increase since the beginning of 2019 and shows a significant rise in their proportion of the market—from 17% to 22.2% within that span, indicating growing confidence among large-scale investors.

The exceptional performance of the A500 ETF, a star player in the booming ETF market, can be viewed as a continuation of the rapid development of ETFs witnessed over the past two yearsResearch from the China Securities Regulatory Commission shows that on September 5, ten different public fund companies, including renowned names like China Universal, Harvest, Huatai-PB, Morgan Stanley, and Yinhua, announced concurrent applications for this productThe subsequent approval came almost immediately, allowing them to issue the ETFs just a few days later on September 10.

Interestingly, despite the index compilation company having announced the specifics of the A500 index, including its constituent stocks, on August 27, the official publication date was not until September 23. This indicates a strategic momentum where the applications and issuance of the ETF outpaced the official announcement, alluding to the organic market demand.

However, investor enthusiasm remains undeterred, as substantiated by notifications from the public offering institutions, where six products saw an early closure of fundraising, and all ten reached the fundraising cap of 2 billion RMB each

In total, this included the establishment of the Jiashi A500 ETF on September 20, which alone accounted for 10% of the total fundraising through internal capital allocationsRegulatory stipulations dictate that any firm using its own funds for subscriptions must commit to holding these shares for a minimum of six months.

Investors are particularly drawn to the A500 ETF, not only due to the generally low valuation of A-shares but also because of the unique attributes inherent in the A500 index itselfAs outlined by the official indicators, the construction methodology of this index is centered around a balanced representation of industries, capturing the structural features of the A-share market while also incorporating prominent companies from emerging sectorsIt is tweaked to reflect industry transformations and maintains high coverage, encompassing about 56% of the A-share's total market and free float capital, yet it preserves a diversified weight distribution in its top holdings.

As of September 23, the A500 index spans 11 industries, with the most substantial segments being industrials at 22.08%, information technology at 13.08%, communications at 5.83%, and health care at 7.73%, collectively accounting for nearly 49% of the index

Additionally, of the 500 stocks included, a striking 337 have market values below 50 billion RMB, with 162 under 20 billion RMB, and a concerning 29 stocks valued under 10 billion RMB, indicating a significant representation of smaller firms.

The issuance of the A500 ETF has not only added to the volume of stock ETFs but has significantly enriched the assortment of options availableAccording to East Money's metrics, there are presently 789 different stock ETFs in the market, together estimated to be around 2.03 trillion RMB, marking a substantial increase of 40.44% from the beginning of the yearAmong the various classifications of ETFs, the broad-based index ETFs surged from 847 billion RMB at the start of the year to nearly 1.52 trillion RMB, representing an extraordinary growth rate of 79.25%.

With regards to the classes of ETFs available, 316 are categorized as stock ETFs, with an impressive 16 newly introduced this year

The A500 has the largest issuance scale among this new wave, followed closely by the A50 ETFAs of September 23, the latter has achieved significant traction as well, with all 10 A50 ETFs initiated in March raising a combined total of 16.5 billion RMB, currently valued collectively at 31.1 billion RMB—a remarkable growth of nearly 89% since their initiation.

Destined for success, the A50 ETFs were brought forth by ten asset management companies, which include industry leaders like Efangda and ICBC Credit SuisseSome of these firms, such as China Universal and Harvest, have strategically invested in both the A50 and A500 ETFs, demonstrating a competitive edge in this expanding market.

The third fastest-growing issuance belongs to the Central State-owned Enterprises Technology Innovation ETF, which tracks the Central State-owned Enterprises Technology Innovation Index

Currently, only one product exists, created by Rongtong Fund in August, raising 1.785 billion RMB, and has a net asset value of 1.233 billion RMB as of late SeptemberThis index was tailored by China Chengtong Group to pursue a growing niche within the ETF space.

The diverse range of newly released ETFs includes various thematic and sectoral indices, as wellApart from the broad-based indices like the Shenwan Main Board 50 ETF, the rest predominantly encapsulate themes such as high dividends, automotive parts, and strategic resource managementWhile certain ETFs such as the Dividend State-owned Enterprises ETF have actually increased in value since initiation, others have demonstrated declines in their performance.

There is also a growing variety of cross-border ETFsBy late September 2024, the overall count had risen to 130, which collectively manage assets worth 341.3 billion RMB, marking a 22.26% increase since the onset of the year

This category now includes 39 different ETFs, with the addition of 8 more in 2024, including the Saudi ETF, Dow Jones ETF, National State-owned Enterprises Dividend ETF, and the S&P Consumer ETF.

Examining the institutional investor structure shows that by mid-2024, institutional players held a combined 973.4 billion units of stock and cross-border ETFs, making up nearly half (48.31%) of the total ETF units in these categories—a sizeable increase from earlier this yearHowever, precise data on how much of this institutional investment is mid to long-term held remains unreportedStepwise improvements in the product offering and collaborative enhancements in associated mechanisms have effectively established ETFs as a quality tool for asset allocation, drawing in an increased participation from long-term funds and nurturing a healthy competitive market ecosystem.

Interestingly, the competition among public fund institutions around ETF offerings has intensified significantly

Currently, 51 public fund companies have established stock ETFs, an increase from the previous yearAmong these newcomers is Hai Fu Tong, a long-standing player who built its first stock ETF, the Hai Fu Tong 2000 ETF, earlier in March 2024 and followed up with an automotive parts ETF in April—showcasing an expanded product line with a combined net asset value of approximately 74 million RMB as of September 23.

Although on the smaller side in terms of scale, these offerings have diversified Hai Fu Tong’s ETF lineup, marking them as the 23rd public institution to simultaneously venture into both stock and cross-border ETFsPrior to this, their portfolio included just one cross-border ETF, the Hai Fu Tong Hong Kong Stock Connect Tech ETF, which was valued at approximately 6.73 billion RMB by late September, bringing their aggregate assets in equity ETFs to around 74.7 million RMB.

Moreover, Wan Jia Fund also made strides in August 2024 by establishing its first cross-border ETF, thereby becoming the 24th public investment provider active in both segments of equity ETFs