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Indexation investment has a great potential in Chinese market, and efforts should be made to develop the index and indexation products, said President Zhang Yujun of the Shanghai Stock Exchange (SSE) at the "3rd Index and Indexation Investment Forum" on September 21. It is learned that such ETFs as the SSE Mega-cap ETF, SSE 180 Style ETF, SSE Mid-cap ETF, SSE Corporate Social Responsibility ETF and SSE Sector ETF, with the scheme design completed, will be launched in succession. The technical preparation for CSI 300 ETF is pushed ahead following the confirmation of its scheme.
According to Zhang, the indexation investment boom had not only changed the functions of indices but also enormously enhanced their innovative development. With thousands of securities indices globally, index development has become an essential part of financial market's innovative development and a successful business mode. The development of indices has in turn provided rich resources and strong impetus for indexation investment, which has multiple advantages such as clear investment target, long-term stability, synchronization with the market momentum and low trading cost.
Zhang cited the statistics of ETF as an example. At the end of 2000, there were 92 ETFs in the world, with the assets value of US$74.3 billion. At the end of 2008, a total of 1,589 ETFs globally saw the assets value rising to US$711 billion, with the annual increase rate of 34%. From January to July 2009, the assets value of ETFs globally rose to US$860 billion with over 200 new ETFs. ETF assets are no longer limited to stocks and have included more types such as bonds, currencies, bulk commodities and gold. Different kinds of hybrid ETFs and leveraged ETFs also appeared.
In China's securities market, Shanghai and Shenzhen markets ranked No. 3 in market capitalization among the bourses of all countries and regions at the end of August, with the total market capitalization of about RMB19 trillion. However, the amount and scale of the indexation investment products in China do not match the market scale due to the lagged development. Currently, there are 27 index funds in China's market, with the net assets of about RMB210 billion, accounting for 8.8% of the assets scale of all mutual funds. In the US, there were 331 index funds in 2007, with the assets of US$784.3 billion, accounting for 10.3% of the mutual funds' assets. China now has 7 ETFs, with the net assets of RMB40 billion, accounting for 1.6% of the mutual funds' assets scale, in contrast with the proportion of 8.6% in the US in 2007. So, indexation investment has a great potential in China's market.
"We are now witnessing the positive development of indexation investment in China," according to Zhang, 19 index funds and ETFs have been approved of issuance this year, among which 9 index funds and 2 ETFs have completed issuance and 6 index funds and 2 ETF feeder funds are being issued now.
Referring to the efforts in the development of index and indexation products, Zhang pointed out that the SSE had always laid emphasis on this field and achieved good results. In 2002, the SSE launched the first investment index—the SSE 180 Index—followed by the establishment and issuance of the Hua An 180 Index Fund and Tian Tong 180 Index Fund, signaling the burgeoning of indexation investment in China.
ETF, a new indexation product, landed in China at the beginning of 2004 when the SSE launched the SSE 50 Index, followed by the unveiling of China's first ETF product—Hua Xia SSE 50 ETF. At the end of June this year, Hua Xia SSE 50 ETF, with an RMB20.7 billion assets scale, ranked No. 3 in Asia and was listed among top 20 globally. The SSE later launched the Dividend ETF and 180 ETF.
According to Zhang, the SSE is aware of the great development potential of ETF and set it as the major development direction of the bourse's products, considering ETF's characteristics, development process and the drastic progress in recent years. The SSE nailed down the development of ETF in the six main tasks for the bourse in 2009, and made positive achievement by carrying out work in the following aspects:
Firstly, efforts were made in developing the index resources. The establishment of China Securities Index Co., Ltd. (CSI) by the two exchanges in Shanghai and Shenzhen in 2005 for the development of the securities market indices in a professional and market-oriented way aims to lay a foundation for such indexation investment products as index funds and ETFs as well as such exchange index products as stock index futures. So far, CSI has developed over 200 CSI indices, including the CSI 300 Index. From 2007, the SSE entrusted CSI with the management and development of the SSE indices. The number of the SSE indices rose from 15 to 48, with most of them available for developing ETFs and other investment products.
Secondly, the expansion of ETF market was promoted. As the SSE intensified its efforts this year, the issuance of the SSE Central SOEs 50 ETF by ICBC Credit Suisse Asset Management Co., Ltd. was completed. The issuance of the SSE 180 Corporate Governance ETF and its feeder fund by Bank of Communications Schroder Fund Management Co., Ltd. and that of Hua An 180 ETF feeder fund are under way. Besides, the SSE Mega-cap ETF and other ETFs will be launched step by step.Thirdly, the cross-border ETF development and listing are on a smooth track. To serve the investment and trading needs of mainland investors by introducing important overseas indices and developing ETF products, a major measure for the internationalization of the SSE, is also an important experiment in constructing Shanghai into an international financial center. The SSE is now speeding up the research of implementation scheme.
Fourthly, research and studies are made on ETF products on the bond market and the commodity market.
Fifthly, the SSE is cooperating with fund companies in developing all kinds of index funds and improving the "SSE Mutual Funds Distribution Channel" for providing one-stop services for the issuance, sale and trading as well as supervision of index funds.
Zhang concluded that the "Opinions on Boosting Development of Shanghai's Modern Service and Advanced Manufacturing Industries and Building Shanghai into An International Financial Hub and An International Shipping Center", published by the State Council this year, specifies clearly that Shanghai shall be built into an international financial center matching China's economic strength and international status of Chinese yuan by 2020, which surely requires a strong capital market suitable for Shanghai international financial center. Therefore, the SSE set up the goal of building itself into a world-class exchange by 2020. Faced with the opportunity, apart from improving its hard skills by continuously developing the blue-chip stock market and expanding the market scale, the SSE will also keep an eye on the soft skills by upgrading its market standardization, global influence and product coverage to better serve China's economic development and the construction of Shanghai international financial center.
