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"It is imperative to further boost the indexation investment at the proper time. We should consistently propel the indices and indexation investment," said President Zhang Yujun of the Shanghai Stock Exchange (SSE) in his speech at the 5th Indices and Indexation Investment Forum held yesterday. He also added that the SSE would spare no efforts, together with the funds industry, to plan the long-term business development of passive investment.
Zhang stressed several reasons for boosting the indexation investment. Firstly, the Chinese indexation investment industry has seen great development and outstanding achievements in less than 7 years. The previous practices have proved the great potential of the indexation investment industry in China. Secondly, the Chinese capital market has developed into the 2nd largest one in the world after its 20-year rapid growth, which has made a solid foundation for fueling the indexation investment industry. Thirdly, the indices and indexation investment in China is of great potential and has ample space as the Chinese economy has still been on a sound track. Fourthly, the scale and population of the current indexation investment industry in China are tiny in light of the whole market scale, the whole fund scale and the total investors. In 2011, the ETFs' scale is not more than RMB80 billion, while the market capitalization is RMB26 trillion. By reference to the western markets, the trading volume of the ETFs listed on the SSE is a small part of the total trading volume. In the past 5 years, the daily average trading volume on the SSE exceeded RMB100 billion, but the daily average trading volume of ETFs was only RMB2 billion, or 2% of the former. Nevertheless, the counterparts in the western markets are more than 10%. There is still a large room for development.
So, Zhang held that pains should be taken to boost the indices and indexation investment, especially the ETFs.
Firstly, efforts should be made to enhance the development and input of the indices and indexation investment. Currently, the industry is short of professionals and investors. Nevertheless, in light of the promising industry, we should invest more in labors and resources. "The whole industry should study, publicize and promote the passive investment or the indexation investment in a deeper and more comprehensive way by investing more in training talents, intensifying the publicity and establishing the systems of business and risk control for the indexation investment industry."
Secondly, we should spare no efforts to perfect the development and compilation of indices on the basis of the market demand. In recent years, China Securities Index Co., Ltd. has done so much to contribute to the formation of the Chinese index system. Besides, the Shenzhen Stock Exchange as well as other socialized index and information institutions have done a lot for the index compilation. However, to explore the market-demand-oriented index system is still a key task.
Zhang said that there were some flaws in the indices complied previously due to the former market circumstances and historical conditions. With the rapid growth of the Chinese securities market, the previous indices should be modified. The development of the industry and the Chinese economy will definitely call for new indices. So, we should consummate the development and compilation of indices.
Thirdly, the asset management industry should solicit investors and further the marketing, promotion and publicity of the indexation investment by focusing on training investors and clients. Zhang held that like those in any emerging market, the Chinese investors are over-confident: it is a concept in the behavioral finance theory, namely, they are liable to invest blindly. Thus, we need to intensify the publicity and marketing to clients, search clients as well as cultivate and educate investors and further the publicity to investors.
Fourthly, importance should be attached to the construction of the infrastructure and risk control of passive investment. The passive investment industry will not be on a sound track unless we establish the risk control system and contribute to the infrastructure and the basic business process. That is why the China Securities Regulatory Commission puts high importance to the risk control. Also, it is expected that the funds industry continues to cement the infrastructure and risk control of the passive investment, especially the fostering of basic talents.
