As the lunar calendar's "New Year" approaches, a remarkable surge in the exchange-traded fund (ETF) market in China has captured the attention of investors, raising both expectations and questions about the future direction of financial marketsThe latest data reveals that as of December 18, 2023, the total number of ETFs in China's market reached an astonishing 889, with total shares surpassing 20 trillion, marking an unprecedented milestoneNotably, 99 ETFs have recorded an increase of over 1 billion shares each this year, and 14 products have even surpassed a staggering growth of 10 billion sharesKey contributors to this growth include sectors such as technology innovation, Hong Kong stock internet, healthcare, semiconductors, and the ChiNext board.
However, it is essential to highlight that despite the remarkable growth in ETF shares, the overall market value has remained around 19.7 trillion yuan, fluctuating just below the 20 trillion markAccording to industry analysts, this scenario illustrates a trend where investors are buying more of these ETFs despite their declining performance, demonstrating a “buy the dip” mentalityThis behavior suggests that the indices associated with these funds now present high value for money, especially amid expectations of economic recovery and a turning point in global liquidity.
Let’s delve deeper into the factors contributing to the proliferation of ETFs this yearFor instance, the Huaxia's SSE 50 ETF, tracking the SSE 50 Index, saw a net inflow of nearly 6 billion yuan in just ten trading days leading to December 14, pushing its total assets to 72 billion yuan with a share count reaching 31.59 billion, setting a record highThis product is indicative of a broader trend among ETFs, as seen with EFund’s SSE 50 ETF that also experienced substantial inflows totaling over 370 million yuan during the week of December 11-15, concurrently hitting new highs in both size and shares.
Moreover, another notable player in the ETF landscape is the EFund’s Sci-tech 50 ETF, which has seen a remarkable net inflow exceeding 17.5 billion yuan this year, with total shares surpassing 35.4 billion
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Concurrently, Huaxia Fund’s equally significant Sci-tech 50 ETF has recently broken the impressive milestone of 100 billion shares, reflecting a share growth rate of over 100% this yearThese figures demonstrate the growing appetite for funds that focus on innovative sectors, further evidenced by the BoShi Fund’s Sci-tech 100 ETF which recently reported assets rising to nearly 7 billion yuan with a daily turnover of 1.22 billion yuan, reaffirming its leadership in its category.
This year, the surge in ETF shares extended beyond just technology and innovation-focused fundsFor example, the Huabao Fund’s healthcare ETF approached 68 billion shares, with a significant 335.76 billion units added this year, which translates to an increase rate exceeding 98%. Likewise, BoShi Fund’s Hang Seng Healthcare ETF, with shares amounting to 29.01 billion, experienced 175.1 billion shares added in 2023 alone, showcasing a growth rate of over 150%. There’s also the Fortune Fund’s Hong Kong internet ETF which has seen a remarkable growth trajectory with nearly 17 billion shares added this year, accounting for an increase rate surpassing 310%, further highlighting the market’s interest in diverse sectors.
On a broader scale, among the 14 ETFs registering over 10 billion shares growth so far this year, many emerged from sectors including Hong Kong internet, healthcare, semiconductors, and ChiNext, underscoring a diverse investor interestNotably, the Guolianan Fund’s semiconductor ETF has made its presence known, contributing over 14 billion shares to its total count reaching close to 32 billion.
Interestingly, despite the fear and uncertainty reflected in these markets, many investors are adopting a counterintuitive strategy: “buy the dip.” Individuals and institutions alike have begun purchasing into ETFs even when prices are falling, indicating a belief in the eventual recovery of the marketsAnalysis has shown that this expanding interest in ETFs, characterized by rising shares, often occurs alongside stagnant performance metrics, indicative of the prevailing market sentiment.
For instance, the SSE 50 ETF, a significant representative of the Shanghai Stock Exchange, has been highlighted as a valuable investment opportunity based on its current valuation, which, according to Huaxia Fund’s analysis, sits at its lowest in three years
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The index, which reflects the performance of 50 of the largest and most liquid stocks in the Shanghai market, is perceived as presenting high investment potential, backed by the broader context of significant traditional sectors like finance and consumer goods dominantly represented within this index.
Moreover, the recent decline of the ChiNext index and the Sci-tech 50 over the year has led analysts to suggest that the current share prices reflect a period of extreme underperformance, offering a compelling buying opportunityWith the ChiNext Index down approximately 21.23% year-to-date and the Sci-tech 50 approximately 11.71%, many observers are noting that these indices are at historical lows, raising questions about how soon a recovery might take place.
So, when can we anticipate a rebound in these ETFs? Fund companies are offering optimistic forecasts, suggesting that conditions for an upturn may soon materializeFor instance, the Fortune Fund has indicated that with the dual impetus from economic recovery and the global liquidity turning point, the A-share market could be poised to emerge from its current lowsFurthermore, they advocate a strategic positioning approach where defensive assets are combined with aggressive plays in high-growth sectors, particularly in technology and emerging markets.
In line with these movements, investment strategies are being tailored to reflect a recovering economyManagers at various funds have pointed towards the necessity of focusing investment in areas backed by governmental support, specifically targeting sectors like digital economy and advanced manufacturingAs the market grapples with a recovery, it becomes essential for investors to maintain an agile approach, continually analyzing the shifting economic and regulatory landscape for optimum outcomes.
As we move closer to the New Year, investors will be keenly watching how these dynamics unfoldWhile the continuing pressure on current share prices may present short-term challenges, the underlying growth in ETF share numbers suggests a deeper resilience within the market
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