Great expectations for China’s burgeoning market
Category: Asia, China
By David Macfarlane
The Chinese ETF industry got off to an explosive start with the success of products focused on broad-based indices. The next generation of ETFs is expected to be more sector-focussed and driven by market demand.
Andy Yang, director, index investments at Harvest Fund Management, believes sector, bond, money market and gold ETFs will lead the next wave of product innovation in China.
Zhang Ya, Huatai-PineBridge’s director of index investment department and fund manager of the CSI 300 ETF and its link fund, says: “We anticipate that the development of the Chinese ETF industry will follow that of the US and Europe in time and expand into multiple assets and strategies.
According to Mr. Yang, ETFs in China are following international market trends and have become the fastest growing mutual fund products on the market. “Especially this year with the launch of the first two cross-market ETFs, the first two cross-border ETFs launched in the domestic market, and RQFII ETFs beginning to trade in Hong Kong as a means to offering foreign investors a more transparent and direct route to investing in China,” he says.
Compared to developed markets, ETFs in China still face an uphill battle in terms of regulations, market conditions, technology etc. “For example,” says Mr. Yang, “there is no market making mechanism in place in exchanges for ETF products; underlying bond liquidities are still not good enough to support large sized ETFs; fund management companies have to get over numerous regulatory hurdles in order to participate in commodity trading; and commercial banks have the majority of retail investors but are still not familiar with ETF products.”
In Mr. Yang’s opinion, the next generation of ETF products in China will cover more markets and extend to other asset classes. He also claims that the introduction of market making, T+0 trading, and security landing mechanisms in the ETF market will be vital components of future product innovation. “We have noticed that in China, an increasing number of investors – both institutional and retail investors – are switching from simple stock picking to top-down investment; investors are now driving the demand for ETF products,” he observes.
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