(Yicai) Jan. 15 -- Riding the rally in China’s stock market, the country’s Exchange-Traded Fund market is also booming and funds tracking technology sectors such as satellites, media, and semiconductors have emerged as major magnets for investor capital.

China’s ETF market swelled by CNY221.7 billion (USD31.8 billion) in the first two weeks of the year to reach CNY6.2 trillion (USD894.8 billion) on Jan. 13, according to financial information platform Wind.

Since the beginning of the year, the Shanghai Composite Index has pushed past the 4,100-point mark and although trading has since been volatile, investor enthusiasm remains strong, with daily transaction volumes repeatedly hitting historical highs. As of yesterday's close, the market turnover approached CNY4 trillion (USD574 billion), setting another record and marking the fourth straight trading day with turnover exceeding CNY3 trillion.

The Shanghai Composite Index closed at 4,126 points yesterday, a dip of 0.3 percent from the day before, but a jump of 3.9 percent from the end of last year. The Shenzhen Component Index climbed 0.5 percent to finish at 14,248.6 points, a gain of 5.3 percent from Dec. 31. While the ChiNext Composite Index advanced 1 percent to end the day at 4,209.9 points, a 7.6 percent increase from year-end.

Equity ETFs have become the primary driver of the ETF market’s expansion. Fueled by both net subscriptions and rising net asset values, their size has grown by over CNY220 billion (USD31.5 billion) since the beginning of the year, including over CNY25 billion (USD3.5 billion) in net subscriptions.

The steady inflow of capital and the improving market backdrop have reinforced each other, significantly driving up the net value of ETFs. According to Wind, as of Jan. 13, over 97 percent of equity ETFs have posted positive returns this year, with 13 of them delivering gains of more than 20 percent.

In contrast, bond ETFs have become the main area of fund outflows, with net redemptions totalling CNY78.9 billion (USD11.3 billion) so far this year.

Trillion-Yuan Club

China Asset Management has seen its ETF assets climb above CNY1 trillion, making it the first fund manager in China to enter the "trillion-yuan club." It now accounts for 16.16 percent of the country’s total ETF market.

E Fund Management closely follows, with ETF assets of more than CNY917 billion (USD131.5 billion), just CNY91 billion (USD13 million) behind the leader and well on its way to becoming the next trillion-yuan manager. Ranked third, Huatai-PineBridge Fund Management manages CNY643.2 billion (USD92.2 billion) in ETF assets, trailing Guangzhou-based E Fund by a much wider margin of CNY273.9 billion.

The pace of ETF growth has exceeded expectations and is still accelerating despite its already massive size, a senior investment researcher at a major fund told Yicai. As overall market capacity expands and index investing gains broader acceptance, however, this is an inevitable outcome of the industry’s development.

Win-Win Outcome

The emergence of fund managers at this scale creates a powerful demonstration effect, encouraging healthier competition across the sector, the researcher said. By offering better products, more refined asset-allocation recommendations and stronger after-sales services, fund managers can deliver a better ETF investment experience and achieve a win-win outcome for both investors and managers.

Another senior executive from a leading fund company shared a similar viewpoint, stating that in addition to capital inflows, sustained market momentum is also a key driver of growth. Rising net asset values can quickly lift fund size, making the emergence of more trillion-yuan fund managers just a matter of time.

Looking ahead, another individual from the index department of a small to medium-sized fund company said ETFs are still well positioned for rapid growth, supported by the rising share of public funds in household asset allocation and a growing number of investors embracing index investment. Consequently, ETFs still have significant room to expand.

"The focus of competition in the ETF space may shift from solely expanding scale to a more comprehensive test of fund managers’ overall capabilities," the person said.

Editor: Kim Taylor