ETF Connect kicks off on July 4
Ten products of ChinaAMC included in the initial list
The first batch of 83 onshore ETFs eligible for northbound trading under the ETF Connect mechanism starts trading today, among them, a total of ten products are from China Asset Management Co.(refered as ChinaAMC below)：the mainland’s largest provider of equity ETF.
Incremental inflows will drive the growth of onshore ETFs
ChinaAMC believes the inclusion of the ETF in the existing Stock Connect mechanism will expand the available investment options under Stock Connect, further facilitate offshore investors’ participation in mainland’s capital markets and domestic investors’ engagement in Hong Kong’s capital market, enhance the appeal of A-shares to offshore investors, especially medium- and long-term capital, increase the openness of the mainland capital market, and further consolidate Hong Kong’s status as an international financial center. Specifically, the new scheme will bring the following benefits:
Firstly, the inclusion of ETFs in Stock Connect will bring in additional liquidity. It will draw new inflow to onshore ETFs and hopefully strengthen the attractiveness of A-shares to overseas long- and medium-term asset allocation portfolios.
Secondly, it will increase the liquidity and trading volume of relevant ETFs. As a prime tool for liquidity management and sectoral & thematic investment, ETF will serve northbound investors seeking exposure to domestic capital market, and hopefully some domestic investors will follow suit by investing in certain ETF products popular among northbound investors, which together will increase the liquidity and trading activity of relevant ETFs.
Thirdly, it will increase the clout of onshore ETFs in the international capital market. The increased participation by international investors in onshore ETFs and the promotional communications of domestic ETF providers will make these ETF products better known to overseas investors, and increase the influence of onshore ETFs in the global capital market.
In addition, with further northbound capital inflows following the ETF Connect scheme, the percentage of institutional investors in onshore ETF investors will further increase, which will benefit the long-term healthy development of the ETF market. Northbound institutional investors usually focus more on ETF providers’ investment capabilities and the competitive advantages of their ETF products, which is likely to accelerate the concentration of onshore ETF market and prompt ETF providers to enhance the risk management of their index investing, improve ETF returns, and provide more products with distinctive risk-return profiles, thus forming a competitive landscape where those strong players stay strong.
ChinaAMC has been the No.1 player in China’s ETF market for 17 consecutive years
ChinaAMC was founded in 1998 and has since stayed at the forefront of the industry for 24 years with a succession of industry firsts. In 2004, ChinaAMC launched the first ETF product in mainland China -- ChinaAMC SSE 50 ETF. At present, ChinaAMC has more than RMB 308 billion in AUM of passive equity products (as of the end of 2021, including its Hong Kong subsidiary). It is the first mainland mutual fund manager with an ETF AUM of more than RMB 200 billion, and has held the position for 17 consecutive years.
Over the past 17 years, ChinaAMC has kept innovating and accumulated rich experience in ETF management. Its quantitative investment team is comprised of more than 20 veteran investment managers and analysts. The company provides a diversity of ETF products, including composite, sectoral and cross-border ETFs, which cover A-share, Hong Kong and overseas markets. The mix is supplemented by various OTC index funds and index-enhancing funds. ChinaAMC has been recognized for its outstanding asset management capabilities and is a six consecutive year recipient of the prestigious Gold Bull Award - Passive Investment Fund Manager presented by China Securities Journal (from 2015 to 2020).
Size and Liquidity Matters
AUM size generally forms the basis of an ETF's liquidity. A larger ETF usually means higher liquidity and more popularity among investors. This will form a positive feedback loop that leads to the polarization of the ETF market landscape where the strong tend to stay strong.
ChinaAMC’s ten ETFs shortlisted for the ETF Connect include four composite index products, six sectoral & thematic index products, mostly the largest in their respective categories.
For example, ChinaAMC SSE 50 ETF (ticker: 510050) is a flagship blue-chip ETF product in the market; it was launched as the first ETF in China and has been the largest ETF in the market with AUM of RMB 52.38bn as of June 28 (same below), which mainly covers finance, consumer staples, information technology, and healthcare sectors. ChinaAMC ChiNext Momentum Growth ETF (ticker: 159967), which adopts the Smart Beta strategy and tracks 50 ChiNext component stocks based on growth and momentum factors, has achieved a 138.13% return on investment over the last three years, far outperforming the ChiNext benchmark return of 72.77% for the same period.
Among sectoral & thematic index products, carbon neutrality has been a very popular theme in the domestic market. ChinaAMC CSI China Low Carbon Economy ETF (ticker:159790) is the largest low carbon ETF in the market, with its latest AUM at RMB 3.35bn and turnover of RMB 156mn over the past year, which mainly covers emerging industries such as PV, lithium-ion battery, wind power, and hydropower, and has achieved a two-year return of 120.3%. ChinaAMC CNI Semiconductor Chip ETF (ticker: 159995) is the largest chip ETF in the market, with its latest AUM at RMB 18.8 bn and average daily turnover of RMB 535mn, which covers the entire chip industry chain and has delivered a three-year return of 129.6%. ChinaAMC CSI 5G Communication ETF (ticker: 515050) and ChinaAMC CSI NEV Industry ETF (ticker:515030) are respectively the largest 5G ETF and largest NEV ETF in the market with AUM of RMB 9.78bn and RMB 12.82bn.