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CSOP reviews China ETF market in 2022

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China-headquartered asset manager CSOP Asset Manager has produced a review of the ETF market in China over 2022, noting that over the year the market size of the Hong Kong ETP market shrank amid the weak market, but the average daily turnover and net fund inflows both increased to a new high in nearly four years.

The net fund inflow was HKD80.5 billion in 2022, the firm says, with CSOP’s ETP assets under management climbing 17 per cent against the downturn and CSOP became the second largest ETP manager in Hong Kong.

The number of new product launches remained at a high level in 2022, and the market coverage and product types became more diversified. Hong Kong stock ETFs and ESG ETFs were the mainstream newly issued products, the firm says and CSOP issued the first batch of virtual asset futures ETFs in Hong Kong.

The volatile market made leveraged and inverse products more attractive, and the average daily turnover of leveraged and inverse products listed in Hong Kong in 2022 has doubled from the end of 2021, and the net inflow of funds has increased by 1463 per cent year-on-year. CSOP writes that its leadership position remains stable, and its market share in terms of average daily trading volume and assets under management has further increased to 99 per cent and 97 per cent respectively.

ETFs have been included in stock connect in July 2022, with the southbound trading much more active than the northbound trading. As of the end of 2022, the market share of CSOP in ETF connect and ETF cross listing reached 80 per cent and 99 per cent respectively, and CSOP Hang Seng TECH Index ETF (3033.HK) became the most popular product in the ETF cross-border investment, with its market size under ETF connect reached HKD5.1 billion.

In the tough 2022, the market value of Hong Kong ETP market recorded the first annual decline since 2018, while the size of CSOP ETPs bucked the market and climbed further, the firm says. Last year, the market cap of Hong Kong stock market decreased by 16 per cent to HKD35.7 trillion, and the market size of Hong Kong ETFs and leveraged and inverse products (L&I) (collectively referred to as the ETP market) decreased by 10.5 per cent year over year to HKD384 billion, accounting for 1.1 per cent of total market cap of HK stock market.

The total number of ETPs is 172. The total market size of ETPs managed by CSOP rose by 17.1 per cent against the trend, and its share in the Hong Kong ETP market rose from 13 per cent to 17.2 per cent.

In 2022, the ranking of the top ETP issuers has changed, and CSOP jumped two places to top two issuer in Hong Kong. As of the end of 2022, the top five ETP issuers in Hong Kong by AUM are Hang Seng Investment Management, CSOP Asset Management, BlackRock Asset Management North Asia, DWS Investment S.A., and State Street Global Investors. CSOP Asset Management jumped from the fourth place at the end of 2021 to the second place in 2022 and Hang Seng Asset Management benefited from being selected as the new manager of Tracker Fund and became the first.

Hong Kong stock ETFs and broad-based ETFs still dominate the Hong Kong ETP market, CSOP writes, but multi- category products are gradually emerging. In terms of underlying markets, Hong Kong stock ETFs and A- share ETFs account for nearly 80 per cent of the market, but more products investing in regional markets such as the Vietnam stock market and the India stock market have emerged; in terms of product types, the market share of broad-based ETFs is nearly 70 per cent, most of the industry/thematic ETFs (the second largest category) are ETP products that track the Hang Seng TECH Index.

The unpredictable market has actually made ETP trading more active, and the average daily turnover of L&I products has doubled. In 2022, the average daily turnover of Hong Kong ETPs was HKD12 billion, setting a new high in nearly seven years, accounting for 8.9 per cent of the total turnover in the Hong Kong stock market. Among them, the average daily turnover of ETFs was HKD9.8 billion, an increase of 48 per cent year-on- year; the average daily turnover of L&I products was HKD2.2 billion, an increase of 100 per cent year-on-year. Among the top 10 most actively traded ETPs, products managed by CSOP occupied six places.

CSOP writes that the number of new product launches in 2022 remained at a high level and the new products became more diversified and multi-faceted. By the end of 2022, there were a total of 172 ETFs in the Hong Kong market. The number of new products launched in 2022 was 29, which was close to that of 2021 and more diverse in all dimensions.

Among them, CSOP issued the most products of seven.

By underlying markets, CSOP writes that the newly launched products in 2022 were more diversified. Unlike the hot issuance market for A-share ETFs in 2021, the newly issued products investing in Hong Kong stocks, virtual assets, and global stocks were among the top by market size. The rise of virtual asset futures products is worth noting, the firm says. On 31 October 2022, the Hong Kong Securities and Futures Commission approved the issuance of virtual asset futures ETFs for individual investors for the first time, and CSOP launched the first virtual asset futures ETFs in Hong Kong on December 16. In less than half a month, the market size of these two ETFs reached nearly HKD550 million.

By product type, the market size of ESG ETFs and thematic ETFs accounted for half of all new product launches, while the enthusiasm for broad-based ETF issuance has significantly cooled down.

The Great China stocks category includes the ETPs investing in two or more markets of A-shares, HK stocks, Taiwan stocks, Chinese ADRs, excluding the ETPs investing in purely A-shares, HK stocks, Taiwan stocks, Chinese ADRs. APAC stocks category include ETPs that invest in Japan stocks, South Korea stocks, India stocks, Vietnam stocks, ASEAN stocks or multiple APAC economies.

In 2022, HK ETP market witnessed the highest net inflow in the past four years, amounted to HKD80.5 billion, while ETFs listed in Hong Kong received a net inflow of over HKD53.5 billion.

By underlying market, HK stock ETFs attracted most of the inflows, amounted to HKD80 billion. From single market perspective, it was followed by Vietnam-equity ETFs that chalked

up net inflow of HKD380 million.

Among HK-equity ETFs, large-cap and tech themed ETFs got the most inflows, amounting to HKD46 billion and HKD16.9 billion respectively. ETFs that track Hang Seng Index and Hang Seng TECH Index are the most popular, CSCOP writes.

ETFs were included in the Stock Connect Scheme of Shanghai, Shenzhen and Hong Kong (“ETF Connect”) for the first time on July 4th, 2022. Currently, there are five eligible ETFs under Hong Kong Stock Connect.

In the first six months since the launch of ETF Connect, turnover of southbound trading was significantly higher than that for northbound trading, CSOP writes. Monthly average daily turnover of HK-Connect ETFs reached a record high of HKD44.5 billion in November last year.

CSOP writes that the CSOP HangSeng TECH Index ETF (3033.HK) showed an impressive ability to win client favour among all HK-Connect ETFs, as its southbound positions have grown exponentially since October 2022. Even when the southbound positions of several other peer products fell back or fluctuated, southbound positions of 3033.HK managed to rise steadily.

CSOP products made up 80 per cent market share of HK-Connect ETFs. CSOP is one of the first batch of issuers to participate in the ETF Connect. Currently, two CSOP ETFs (namely 3033.HK and 3037.HK) are eligible for mainland investors, with market share of 80 per cent by size under HK ETF Connect as of the end of 2022.

In 2022, although there was no new product issued under Mainland-HK ETF Cross Listing scheme, the outstanding AUM of existing products under the scheme reached a record level. CSOP is the only ETF issuer participating in the Shenzhen-Hong Kong and Shanghai-Hong Kong ETF Cross Listing schemes, with a market share as high as 99 per cent. With the opening of the China capital market, CSOP writes that it is committed to exploring more cross-border opportunities by actively participating in more related projects.

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