Shanghai ETF

Exchange Traded Funds (ETFs) have provided a good amount of growth to China’s stock exchanges. The Shanghai index wasn’t given much exposure to earlier but according to Morgan Stanley China Fund, Shanghai index is one of best performing indexes. It is the most watched index in China. Chinese funds have launched almost 20 ETFs in the past years and the innovative pushes are continuing. This also includes the first ETF to track the overseas indexes planned to be launched, and Shanghai ETF products that invest in both Shanghai and Shenzhen listed stocks.

The ETF scene in China is crowding day by day. It started in 1993 and in start of 2009, the Shanghai Stock Exchange (SSE) plan to launch ETF related to the foreign indices was a step towards accelerating the experiments with Shanghai ETF products. These are mostly related to the Shanghai 50, Shanghai-Shenzhen 300 ETF and  Shanghai ETF based on indices of finance and consumer goods industries.

China’s ETF market is the third largest in Asia following Japan and Hong Kong. The Singapore Exchange and China’s are almost rated the same in this regard. The asset of Shanghai ETFs add up to about RMB 70 billion and a daily trading volume of RMB 2 billion. China also has started to hold an annual ETF event, ‘Indexing & ETF Investments China’ since 2010.

The Shanghai-Shenzhen 300 is effective for ETF products because of its presence in the Tokyo Stock Exchange and the Hong Kong Exchange. The SSE has negotiated with many foreign stock exchanges for cross border ETF cooperation. This is being done to improve the capability of Chinese investors globally so they can allocate their investments well. In 2010, the bank of Montreal’s fund venture decided to launch the first ever ETF to track the Shanghai stock index. It is difficult to track an index of nearly 1000 companies, but Shanghai is seeking to become the international financial center by 2020. It is expanding the range of its financial products.

The Shanghai ETF has offered great development to the Chinese ETF market. There is a growing demand for ETF products based on the portfolio of shares. The SSE is considering issuing more of such type of products. It is also in the mode of launching products including ETF for top five financial shares or top eight consumer goods shares. This will effectively help SSE to meet the growing demand. The SSE has also announced an agreement with the SE Hong Kong Ltd. for further development of ETF market. The Shanghai based ETF has an edge over the Shanghai-Shenzhen 300 because of more index’s weighted stocks listed in Shanghai.

Shanghai is to focus on Yuan related business because of its status as an international currency. Currently china appointed a fund management firm to manage the ETF quota. The Qualified Domestic Institutional Investor (QDII) licensed firm capped the initial amount to be 3 billion Yuan which will be increased over time. Shanghai is also set as a trial place for hybrid business having various sectors in financial industry.