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In recent years, index investment methods have attracted more and more attention from investors. It took 17 years for the domestic market to grow the scale of ETFs from 0 to 1 trillion yuan, and only 3 years for the domestic market to grow from 1 trillion yuan to 2 trillion yuan.

On August 3, the ETF Industry Development Report (hereinafter referred to as the "Report") released by the Shanghai Stock Exchange showed that by the end of June 2024, the number of ETFs listed on domestic exchanges reached 967, an increase of 9% from the end of 2023, and the total scale reached 2.48 trillion yuan, an increase of 21% from the end of 2023. Among them, the market value of equity ETFs reached 1.81 trillion yuan, a record high, accounting for about 2.2% of the total market value of A shares. The net inflow of non-monetary ETFs in the first half of 2024 was as high as 461.7 billion yuan, accounting for about 80% of the net inflow for the whole year of 2023. Among them, the net inflow of broad-based ETFs reached 407.6 billion yuan.

In the industry's view, as various measures for a new round of deepening capital market reforms are steadily advancing, domestic index investment has broad room for development and the ETF market is entering a period of development opportunities.

The report believes that in the second half of 2024, the index system will be more abundant, the ETF product system will continue to improve, ETF interconnection will be expanded, and supporting mechanisms will be improved, including accelerating the inclusion of the Science and Technology Innovation Board ETF in the Fund Connect platform transfer, continuing to study and promote the normalization of ETF collective subscription business, and optimizing the market maker mechanism and after-hours trading mechanism.

Domestic stock ETFs account for more than 70% of the total

The scale of ETF products reached a new high, among which equity ETFs dominated.

By the end of June 2024, the total assets of ETFs (including ETPs) listed globally will reach US$13.17 trillion, an increase of 13.44% from the end of 2023. The average annual compound growth rate of scale in the past 20 years has exceeded 20%, and the number of products has maintained positive growth for 20 consecutive years.

Among them, the scale of global equity ETFs reached US$9.98 trillion, accounting for 75.8% of the total scale of global ETFs; the scale of bond ETFs reached US$2.16 trillion, accounting for 16.4%; the scale of commodity ETFs was approximately US$196 billion, accounting for 1.5%; the scale of other types of ETFs was approximately US$834 billion, accounting for 6.3%.

The product layout of domestic ETFs is also increasingly improved, with investment targets covering major asset classes such as stocks, bonds, currencies, commodities, and overseas stocks. Among them, the scale of stock ETFs is 1.81 trillion yuan, accounting for 73%; the scale of cross-border ETFs is 316.6 billion yuan, accounting for 13%; the scale of currency ETFs is 185.9 billion yuan, accounting for 8%; the scale of bond ETFs is 109.5 billion yuan, accounting for 4%; and the scale of commodity ETFs is 52.7 billion yuan, accounting for 2%.

In the first half of 2024, the scale of domestic ETFs increased by 430.9 billion yuan, of which newly issued products contributed 43.1 billion yuan of incremental scale, accounting for 10%, and the scale of existing products increased by 387.8 billion yuan, accounting for 90%.

In terms of new products, 87 new products were launched in the market in the first half of 2024, of which 69 were stock ETFs. In terms of existing products, the scale of broad-based flagship ETFs such as CSI 300, SSE 50, CSI 500, and CSI 1000 has increased significantly, among which E Fund and Huatai-PineBridge CSI 300 ETF ranked first and second in terms of scale increase, at 91.757 billion yuan and 80.782 billion yuan respectively.

Investors in channels such as banks and the Internet are increasingly accepting ETFs, and they mainly participate through ETF linked funds. As of the end of the second quarter of 2024, the scale of domestic ETF linked funds was 427.1 billion yuan, an increase of 8% from the end of the first quarter of 2024 and 17% from the end of the second quarter of 2023. At the end of the second quarter of 2024, the scale of domestic ETF linked funds accounted for about 17% of the total scale of domestic ETFs, a further increase from 16% at the end of the first quarter.

As the scale of ETFs continues to grow, net capital inflows are also accelerating. In the first half of 2024, the global ETF industry saw a net inflow of $642.2 billion, reaching 65.9% of the $974.9 billion for the whole of 2023. In terms of asset categories, equity ETFs saw the highest net inflows, reaching $484.5 billion; bond ETFs saw a net inflow of $175.2 billion.

Among the top 20 products with the largest net capital inflows in the first half of 2024, there are four domestic CSI 300 ETFs - E Fund, Huatai-PineBridge, Harvest and Hua Xia, ranking 6th, 7th, 13th and 14th respectively.

Shanghai Stock Exchange's ETF products continue to expand

In the rankings of various exchanges in the first half of 2024, the Shanghai Stock Exchange's ETF trading volume ranked first in Asia and third in the world, and its scale ranked second in Asia and eighth in the world.

As of the end of June 2024, there were 132 broad-based ETFs (including index-enhanced ETFs) on the Shanghai Stock Exchange, with a total scale of 950.8 billion yuan, accounting for 70% of the scale of Shanghai's stock ETFs, an increase of 47% compared with the end of 2023.

In terms of sci-tech innovation ETF products, there are 29 sci-tech innovation board related products in the Shanghai Stock Exchange ETF market, with a total scale of 151.9 billion yuan. Among them, there are 20 sci-tech innovation board broad-based ETFs, with a total scale of over 140 billion yuan.

In terms of the product layout of central enterprises ETF, there are 30 state-owned enterprises and central enterprises theme products in the Shanghai Stock Exchange ETF market, with a total scale of 45.5 billion yuan, and the investment areas include central enterprise dividends, state-owned enterprises One Belt One Road, central enterprise innovation drive, central enterprise structural adjustment, Shanghai state-owned enterprises, etc. This year, three new Guoxin Hong Kong Stock Connect central enterprise dividend ETF products were launched, with a fundraising scale of 3.4 billion yuan.

At the same time, the Shanghai Stock Exchange has enriched ETF products with low risks and stable returns. First, it enriched the varieties of dividend strategy ETFs. As of the end of June 2024, there were 20 dividend strategy products in the Shanghai Stock Exchange ETF market, with a total scale of 59.1 billion yuan, an increase of 62% from the end of 2023. Since the beginning of this year, the Shanghai Stock Exchange's dividend strategy ETF has a net inflow of 15.2 billion yuan, with an average yield of 11.04%. Second, it enriched the varieties of bond ETFs. As of the end of June 2024, there were 15 bond products in the Shanghai Stock Exchange ETF market, with a total scale of 91.2 billion yuan, an increase of 68% from the end of 2023. Since the beginning of this year, the average yield of Shanghai Stock Exchange bond ETFs is 3.37%.

In terms of green-themed ETF products, as of the end of June 2024, there were 43 green-themed products in the Shanghai Stock Exchange ETF market with a total scale of 33.4 billion yuan, covering green industries such as photovoltaics, new energy, and green electricity, as well as deep low-carbon themes such as Yangtze River protection, carbon neutrality of the Environmental Exchange, and ESG.

In recent years, the Shanghai Stock Exchange has also taken cross-border index investment as an important means to promote the opening up of the capital market. It has successively launched China-Japan, Shanghai-Hong Kong and Shanghai-New Shanghai ETF interconnections, developed China-Korea co-compiled index products, and promoted the inclusion of ETF products in the Shanghai-Hong Kong Stock Connect.

The cross-border ETFs listed on the Shanghai Stock Exchange have investment scopes covering Hong Kong, the United States, Germany, France, Japan, South Korea, Singapore, Saudi Arabia, etc. In June this year, the first batch of cross-border ETF products investing in the Saudi market were officially approved and listed on July 16.

Five major trends may emerge in the second half of 2024

While enriching ETF products, the Shanghai Stock Exchange continues to improve market supporting mechanisms.

Currently, the Shanghai Stock Exchange is carrying out a pilot program for ETF collective subscription business, and 19 stock ETF pilot programs have been implemented.

"In the next step, we will promote the inclusion of the Science and Technology Innovation Board ETF in the Fund Connect platform for transfer in accordance with the relevant work arrangements of the 'Eight Measures for Science and Technology', provide a convenient channel for investors to allocate listed funds such as ETFs, and guide more social funds to flow to new quality productivity and other national key support areas." The Shanghai Stock Exchange also stated in the report that it will continue to study and enrich the types of ETF market makers and study the extension of the after-hours fixed price trading mechanism to the ETF field.

As the new round of capital market reform measures are steadily advancing, the report believes that the ETF industry will show five major development trends in the second half of 2024:

First, the index system is more abundant, and index investment is developing continuously. On the one hand, the broad-based index system will continue to be enriched, and the CSI, SSE, and A series indexes will develop in a coordinated manner, continuously enriching the layout of broad-based ETF products and providing high-quality investment targets for medium- and long-term funds to enter the market. On the other hand, as the market's recognition of strategy indexes increases, strategy index ETFs will usher in further development, and strategy ETFs such as index-enhanced, high-dividend, high-dividend, low-volatility, value, and quality will emerge one after another.

Second, we will do a good job in the "five major articles" of finance, and the ETF product system will continue to improve. ETF products focusing on concepts such as scientific and technological self-reliance, valuation return of central enterprises, green environmental protection and energy conservation, and multi-level capital market construction will continue to develop.

The third is to implement the "Eight Measures for the Science and Technology Innovation Board" to serve the new quality productivity. The development of the Science and Technology Innovation Board index and ETF varieties will be further enriched, guiding funds to continue to invest in "hard technology" industries and strategic emerging industries to serve the development of new quality productivity.

Fourth, expand ETF interconnection. We will further expand and optimize the cross-border interconnection mechanism of the capital market, promote the steady expansion of ETF inclusion in the interconnection targets, deepen cooperation with the fund markets of the “Belt and Road” countries on the basis of the existing ETF interconnection, enrich the cross-border cooperation model of the fund market, and enhance the international development capabilities.

Fifth, the ETF supporting mechanism is constantly improving to build a good investment ecological environment. We will improve the domestic index investment ecology through a number of supporting mechanism optimization measures. We will accelerate the inclusion of the Science and Technology Innovation Board ETF in the Fund Connect platform transfer, continue to study and promote the normalization of ETF collective subscription business, optimize the market maker mechanism and after-hours trading mechanism, so as to attract more medium- and long-term funds to enter the market through ETFs.