China’s ETF Industry: Short History With Rapid Growth

November 03, 2016

Indexes & Exposures

Nearly all top products track the most popular A-share indexes, such as the China 50, CSI 300, CSI 500. Among the seven ETFs that exceeded $1 billion in assets, six of them track domestic A-share indexes. E-Fund has introduced different products. The Hang Seng China Enterprise ETF tracks Hong Kong-listed H-shares, and it has become one of the top seven ETFs, amassing over $1 billion asset.

There have been plenty of offerings on sector ETFs. However, most have yet to gather sizable assets. There is one exception: The technology-heavy E-Fund ChiNext ETF has become one of the top 10 largest ETFs in China.

Sector Concentration & Product Differentiation

The top ETFs tend to have heavy concentration on the traditionally heavily regulated financial and insurance industries. There are, however, two exceptions among the top 10 products. The China CSI 500 ETF tracks more companies, and thus provides diverse sector exposures. The E Fund’s ChiNext ETF tracks technology, and to a lesser degree, industrial firms.


Data source: Bloomberg, 10/17/2016. Top three sectors are highlighted in red. Financial sector is noted for its high exposure for most top ETFs.


For a larger view, please click on the image above.


It is worth noting that a few issuers have introduced factor-based and equal-weighted smart-beta products, such as the YinHua SSE 50 Equal Weighted ETF, the SSE 180 Value ETF and the Huatai-PineBridge SSE Dividend ETF.

There is even a socially responsible themed ETF, the CCB Social Responsibility ETF. However, the concept of social responsibility seems to deviate from the traditional definition of socially responsible in the West. This ETF has plenty of firms that may not be so environmental friendly, such as railroad, car manufacturers, construction firms and utility companies.

The fund probably should have been named the Public Goods ETF, as these firms seem to be the key players in building public infrastructure rather than focusing on environmental protection, socially progressive and good governance policies.


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