(Bloomberg) — Chinese stocks managed by passive funds have overtaken the size of those under actively-managed peers, marking a major milestone as the country rapidly catches up with the global passive boom.
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The total value of onshore stocks held by passive funds including exchange-traded products swelled to 3.16 trillion yuan ($443 billion) at the end of the third quarter, according to figures compiled by Minsheng Securities Co. The tally has edged past that of active mutual funds, whose mainland equities under management ticked up to 2.84 trillion yuan, for the first time ever.
The reversal is a culmination of a years-long rise in passive investment, as investors frustrated with stock losses shunned professional fund managers. While a latecomer in introducing ETFs, China has witnessed a surge in demand for passive products lately, especially for equity-related ones. The country still trails the US, where passive equity strategies command 58% of market share.
While most of this year’s inflows were driven by state funds using ETFs as a market intervention tool, the influx in September was likely triggered by retail investors rushing to ride a stimulus-driven equity rebound. The CSI 300 Index surged nearly 35% from a September low through Oct. 8, before losing steam as traders await details on fiscal stimulus.
There’s still a lack of a diverse ETF products listed onshore compared to developed markets, where those tracking derivatives and crypto assets have boomed.
Meanwhile, China’s active equity products have faced redemption pressure as investors took advantage of narrowing losses to trim holdings, according to Minsheng analysts including Mou Yiling. Total active fund redemptions in the third quarter reached 139 billion units, compared to 89 billion units in the previous period, according to a separate estimate by Huachuang Securities.
Active funds have seen their assets steadily shrink since a late-2021 peak. In contrast, inflows into ETFs have steadily risen since then, with the pace picking up this year, thanks partly to the so-called national team snapping up shares to buffer downside pressure. State-backed investors were particularly active during the February rout and a key political meeting in July.
(Updates with CSI 300 moves in fourth paragraph.)
