As the year 2024 marks the 20th anniversary of the exchange-traded fund (ETF) market within the domestic landscape, it can be stated with confidence that this segment has witnessed exponential growth, overcoming unprecedented hurdles along the wayThe milestone is particularly significant, considering the remarkable surge in market activity, with an impressive 81% increase in total assets by the end of the year compared to 2023.

In a recent report released by the Shanghai Stock Exchange on January 24, 2024, the global ETF market (including exchange-traded products - ETPs) hit a staggering total asset volume of $15.09 trillion by the end of the yearWithin this framework, the domestic ETFs listed on local exchanges reached an impressive RMB 3.7 trillion, marking a historic high for the marketNotably, the stock ETF segment soared to a remarkable RMB 2.89 trillion, further solidifying its position within the financial landscape.

The year also reported record-breaking net inflows, with nearly RMB 1.2 trillion flooding into domestic ETFs, which marks a 110% rise since 2023. The figures highlight the robust performance of stock ETFs, which saw over RMB 1 trillion in net inflows, accounting for over 80% of the total inflows

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It is evident from these statistics that the appetite for ETFs has not only invigorated the market but expanded the range of investment strategies available.

Looking ahead to 2025, the report outlines five key trends anticipated in the ETF sector: first, a continuous enhancement in the supply of high-quality ETF products; second, the implementation of initiatives related to the newly formed Science and Technology Innovation Board; third, ongoing optimization of support mechanisms for ETF trading; fourth, increased marketing efforts both domestically and internationally; and finally, the expansion of the various scenarios in which ETFs can be utilized.

The trajectory of the domestic ETF market is particularly noteworthy considering its rapid ascent from the inception of the first ETF in 2004. It took 17 years for the first milestone of surpassing RMB 1 trillion, but the velocity of growth is astonishing — the market reached its second trillion in just three years and the third in a mere nine months

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This newfound speed underscores the significant and growing role that ETFs play in investment portfolios.

As of December 2024, the total number of ETFs listed on domestic exchanges surpassed 1,033, a growth of 16% year-over-year, with an associated total market value climbing to RMB 3.7 trillion, a notable increase of 81% from the previous yearIncredibly, the stock ETFs alone accounted for RMB 2.89 trillion of this total, representing approximately 3% of the total market capitalization of A shares, thus highlighting their growing importance in capital market dynamics.

Furthermore, the Shanghai Stock Exchange has also witnessed an impressive rise in the scale and participation of its ETF divisionBy the end of 2024, there were 607 ETFs operating on the exchange with a total market value of RMB 2.7 trillion, a remarkable 73% increase from 2023. Within that segment, stock ETFs alone reached RMB 2.1 trillion, up by 96%. The trading performance has been robust, with an overall trading volume nearing RMB 30 trillion for the year and a daily trading average of RMB 135.69 billion, illustrating the increasing engagement from investors.

In terms of global standing, the Shanghai Stock Exchange's ETF trading volume positioned it as a leader in Asia, ranked first in terms of trading value and third globally

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The surge in ETF trading activity reflects a broader global trend, where the ETF market saw unprecedented growth in 2024, exceeding $15 trillion for the first time, with net inflows reaching approximately $1.8 trillion throughout the year.

When examining the asset distribution within this global context, equity ETFs clearly dominate the market, comprising $11.29 trillion (74.8%) of the total ETF assets, while bond ETFs stand at $2.39 trillion (15.8%). Commodity ETFs and others contribute significantly less overall, with about $311 billion and $1.1 trillion respectivelyThis indicates a clear investor preference for diversified and equity-oriented financial products amidst a highly dynamic market environment.

Geographically, by the end of 2024, the United States dominated the global ETF landscape with a valuation of $10.46 trillion, making up nearly 70% of the entire marketEurope held approximately $2.20 trillion (15%), and the Asia-Pacific region accounted for around $1.75 trillion (12%). Importantly, within this context, the domestic ETF market in China contributed over 50% to the incremental growth of the Asia-Pacific market, signifying the strategic role it plays.

The emergence of ETFs as a robust channel for asset management has transformed them into vital instruments for individual wealth management and long-term capital allocation strategies

As the report emphasizes, the lowering of fees and the new commission structures are enhancing investor experiences, while the recent inclusion of 85 index funds into the personal pension investment list is propelling index investing into a new growth phase.

Looking to the future, the Shanghai Stock Exchange is committed to enhancing the ETF ecosystem in key areas: first, broadening the quality and types of ETFs offered; second, implementing policies related to the Science and Technology Innovation Board to bolster offerings; third, optimizing the operational mechanisms around ETFs; fourth, amplifying marketing initiatives to both domestic and abroad; and lastly, enriching the applications of ETFs in various domains to construct a favorable market infrastructure.

These proactive measures indicate a comprehensive commitment to refine the sector and capitalize on the growing demand for ETF-based investments

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