I was fortunate to meet Tian Huan, CFA and CEO Assistant for Invesco Great Wall Fund Management Co., Ltd. while I was in Beijing. This introduction was made by PowerShare’s Kevin Connolly, who has been instrumental in supporting ETF Strategists like Lunt Capital. Invesco PowerShares has been a leader in “Smart Beta” ETFs. After talking with Huan, I was incredibly impressed that they are also leaders in offering Smart Beta ETFs in China. They are well positioned for growth in the vibrant Chinese ETF market, and they offer ETFs in China through the Invesco Great Wall brand.
By Huan’s estimate, approximately 50% of ETF assets in China are held by institutional investors. There are just more than 100 total equity ETFs in China, with AUM between $35 and $45 billion. Broad market ETFs are popular, but sector ETFs are also gaining traction. Chinese institutions have been big investors in China ETFs in 2015, in part because they expect the government to go to great efforts to spur the economy.
In addition, many Chinese have invested in real estate that has grown at a double digit pace each year. This pace is unlikely to be sustained, and Chinese property markets have become very expensive. Individuals and institutions need destinations for their cash, and the move away from property will likely benefit financial markets. There is an underlying belief that the government wants financial markets to develop and to be successful. Government policy has created strong liquidity, and this money is looking for a home. In the view of many, too much money in China has been sitting in banks—this money needs to find its way into “non-real estate” investments.
I talked extensively with Huan about the structure of Chinese investing—feeder funds, A-shares, B-shares, and H-shares. The role of equity markets in China is changing. Hu highlighted the process that has occurred in China: 1—individuals put money in banks. 2—the wealthy took money from the banks and purchased real estate. 3—money is coming out of real estate and into the financial markets.
I was very impressed with Huan and with Invesco’s efforts in the Chinese market. We also talked about MSCI’s potential inclusion of Chinese A-Shares in its global benchmarks. The future of the ETF market is not only bright in the U.S., but I expect to see tremendous growth in the ETF industry in China.
Special thanks to Brennan Staheli, Devin Lindley, and the Lunt Capital team for their contributions to this report.