The year 2024 is shaping up to be monumental for index-based investment in China,with astonishing trends emerging in the exchange-traded fund (ETF) sector.Recent data from Wind reveals that the total scale of ETFs in the market has exceeded a staggering 3.58 trillion yuan,attracting nearly 1.6 trillion yuan in investments over the past year alone.Among various offerings,broad-based ETFs have become the crowd favorites,especially with the notable A500 ETF gaining popularity.This rise has prompted a flurry of new broad-based ETF launches,enabling investors to access a wider array of specialized investment tools designed to meet diverse needs.

In a recent development,eight prominent mutual funds—E Fund,Southern Asset Management,Huatai-PB,Tianhong,Penghua,Ping An,YinHua,and Industrial Bank—have filed applications for the Shanghai Stock Exchange 180 ETF.Until now,only one product related to this benchmark index from Huaan Fund has been available in the market.Established in 2006,the Huazhi 180 ETF has reportedly amassed a size of 20.915 billion yuan,paving the way for these new entrants.

The Shanghai Stock Exchange 180 Index itself,introduced back in July 2002,serves as a critical benchmark for China’s capital markets.Composed of 180 large-cap,liquid stocks traded on the Shanghai Stock Exchange,it aims to reflect the overall performance of blue-chip companies in that market.As the year draws to a close,there are plans afoot to revise its compilation methodology to better encapsulate the performance of core listed companies.According to sources,these updates will take effect on December 16 of this year.

This revision encompasses three primary changes: first,integrating a sampling method that combines liquidity screening and market capitalization ranking to enhance the sample’s market cap coverage; second,implementing a cap on individual stock weightings among the top five constituents while introducing industry balance rules; third,embedding ESG (Environmental,Social,Governance) sustainable investment principles by excluding companies rated C and below by the China Securities Index’s ESG assessment,thereby reducing the potential for severe negative risk events within the sample.

The optimized index will significantly strengthen its representation of the Shanghai market and enhance its investment value.As reported,the selected index samples cover approximately 61% of the market cap,63% of revenue,76% of dividends,and 82% of net profit in the Shanghai Stock Exchange,marking an increment of 2.4% in market cap coverage,1.4% in revenue,4.1% in dividends,and 4.9% in net profit compared to the previous methodology.Additionally,the new design also increases the weight of growth industries related to 'new economy' sectors like information technology,healthcare,and industrials by 9.5%,while increasing the weight of the Sci-Tech Innovation Board by 1.8%.

Huazhi Fund indicates that insights from the compilation rules of established indices such as the China Securities A500 and CSI 300 have been absorbed into the new methodology.The adjustment increases the representation of technology-driven industries within the index,reflecting a shift towards sectors aligned with new forms of productivity.The restructured index is focused on reducing the weights of traditional sectors such as finance,utilities,and energy,while significantly boosting the weights of sectors like information technology,healthcare,industrials,and discretionary consumption.As China continues to embrace index-based investing,it is anticipated that more investors will leverage the Shanghai 180 Index to explore emerging opportunities.

Heading into the fourth quarter,the momentum for launching new ETFs shows no signs of slowing down.In addition to the Shanghai 180 ETF,multiple applications for the ChiNext 50 ETF are currently pending regulatory approval.Leading firms such as Huaxia,E Fund,ICBC Credit Suisse,and ChinaAMC have put forward their proposals for ChiNext 50 ETFs.The ChiNext 50 Index,which debuted in June 2014,has so far seen only three ETFs tracking it in the market.

Pang Yaping,general manager of E Fund's Index Research Department,expressed that the growing demand for indices linked to the ChiNext reflects the robust appetite from investors.The overall ETF market linked to ChiNext indices has surged from 37.1 billion yuan to approximately 189.3 billion yuan over the last three years.To fill a gap in the market,E Fund has established a diverse array of ChiNext index products that span various benchmarks,positioning itself strategically in this competitive landscape.

Moreover,ETFs tracking the China Securities A500 Index are enjoying significant traction,having garnered over 90 product applications within just two months since the index's launch.Many of these products have surpassed the 10 billion yuan threshold,collectively exceeding 200 billion yuan—a record for the fastest accumulation of assets in the history of A-shares.

In late November,the first ETF to track the ChiNext Artificial Intelligence Index was approved,signifying the continued innovation in the market.This index offers comprehensive coverage of leading players in the AI sector,integrating hardware,software,and application domains.

The growth trajectory is compelling; it took 16 years for China’s ETF market to expand from zero to one trillion yuan.Remarkably,the market skyrocketed from two trillion to three trillion yuan within less than a year.Wind data reveals that as of November 24,ETFs in China have cumulatively increased by 5.34 billion units to reach 25.55 trillion units,while the total asset scale has seen a rise of 1.54 trillion yuan,overshooting the 3.58 trillion yuan mark.

Long-term capital flows have maintained a steady influx into broad-based ETFs this year.Su Junjie,general manager of Penghua Fund's Quantitative and Derivatives Investment Department,highlighted the intrinsic benefits of ETFs—diversified investments,transparent management,and cost-effectiveness—which align perfectly with institutional investors' needs.For retail investors,ETFs lower investment barriers while allowing easy access to diverse sectoral exposures,enabling them to spread individual stock risks effectively while keeping abreast of industry-specific opportunities.

The exchanges are committed to advancing a comprehensive reform of the capital market,aiming to enhance and diversify the broad-based index system.This initiative will not only provide a wider array of investment options and reference tools but also better serve national strategies and the real economy.It will cater to residents’ wealth management needs while encouraging various forms of long-term investments via index strategies,which are fundamental to fostering a balanced investment ecosystem centered around rational,value,and long-term considerations.