Who said anything about ESG?
China’s thematic ETF market has sprung to life, with three of 2019's biggest winners tracking the weapons industry and state-owned companies.
As trade war fears abate and as MSCI promises to give China more weight in its influential emerging markets index, China's ETF market has been given a major growth spurt this year.
There have been 80 A-share focused ETFs listed on China's main exchanges in 2019, up 48% from the same period a year earlier. While their asset-gathering grew 44% year-on-year to 129.3 billion RMB (US$18.4 billion) from 89.6 billion RMB in 2018, according to Chinese data provider Wind Information.
The increase came as the CSI 300 Index, the most popular gauge of China's stock market, soared 31% in the first ten months this year.
Top Chinese managers were active in the IPO market during the time. China Asset Management Corp (China AMC), one of the largest Chinese fund houses, launched ten equity ETFs, more than any other ETF provider, with total fundraising of over 12 billion RMB. It was followed by E Fund Management and Guotai Asset Management, each rolling out six new products.
Thematic ETFs were especially popular.
The The Bosera CSI Central-SOEs' Structural Reform Index ETF (512960), which tracks China's state-owned companies that are slated for reform, attracted the most money, 16.7 billion RMB. It was trailed by similar products from Harvest Fund Management and GF Fund Management.
Meanwhile, Fullgoal’s weapons industry themed product also gained popularity among Chinese investors. The company’s CSI Leading Military Enterprise Index ETF raised 7.2 billion RMB in July.
Chinese managers were also interested in technology-related products as they want to capitalise on the opportunities from the launch of the Science and Technology Innovation Board, a technology innovation board for Chinese startups, in June.
For example, China AMC rolled out the first 5G product, the ChinaAMC CSI 5G Communications Theme ETF, and Huatai-PineBridge launched a thematic ETF tracking the CSI Technology 100 Index.
Smart beta and commodity futures ETFs have also been gaining market traction with the regulatory loosening on product innovation.
China AMC, Dacheng Fund Management and CCB Principal Asset Management rolled out the country’s first batch of commodity futures trackers on nonferrous metals, soybean meal, as well as energy and chemical following their approval from the China Securities Regulatory Commission in August.
China's ETF market had 55 smart beta products at the end of March with total AUM of around 29.5 billion RMB, according to figures from Hua An Fund Management. This means they make up around 3.51% of total China's total ETF assets.
Despite the small market share, many large players - including China AMC and Dacheng - are putting more effort to building smart beta products with the growing market demand.
Average daily ETF trading volume in China was around 31.6 billion RMB in the first quarter of 2019, down 30.4% from the previous quarter.
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Image: Shanghai Stock Exchange
