Shanghai Stock Exchange: In the first half of the year, the net inflow of funds into the ETF market reached 461.7 billion yuan, with a total trading volume of 1.47 trillion yuan.

According to the Shanghai Stock Exchange, index investing has been thriving this year, with the total size of the ETF market exceeding 2 trillion yuan. The market has seen a continuous net inflow of funds, with the ETF market receiving a net inflow in the first half of the year totaling 461.7 billion yuan, with a total turnover of 14.7 trillion yuan. In particular, the Shanghai ETF market saw a net inflow of 352.8 billion yuan, with a total turnover of 11.8 trillion yuan. The daily turnover exceeded one trillion yuan and trading activity increased, maintaining its position as the top market in Asia. Overall, with continued product diversification and ongoing optimization of supporting mechanisms, ETFs have become an increasingly high-quality tool for investors' asset allocation, leading to a significant increase in the participation of medium and long-term funds, and the gradual formation of a healthy market ecosystem. I. Overall Liquidity of ETFs The number of investors in the ETF market has been steadily increasing. In recent years, the concept of index investing has been increasingly recognized by investors, and ETF products, with their advantages of transparency, low fees, and convenient trading, have become an important tool for residents' asset allocation, further promoting financial inclusion. As of the end of June 2024, there were a total of 6.58 million holders of Shanghai ETFs (excluding fund-of-funds), a 61% increase from the end of 2020. Among them, institutional investors in the Shanghai ETF market held a total of over 1.3 trillion yuan, accounting for over 70%, with the proportion of institutional holdings increasing by 7 percentage points from the end of 2023 and the scale of holdings increasing by 31.8%. Trading activity has increased. In the first half of 2024, trading activity in the domestic ETF market further increased, with a total turnover of 14.7 trillion yuan and a total turnover of 11.5 trillion yuan for non-currency ETFs, both reaching historical highs. In particular, the overall turnover for Shanghai ETFs was 11.8 trillion yuan, with a daily average turnover of 1.008 trillion yuan, a 12.6% increase from the same period last year. The total turnover for non-currency ETFs was 8.7 trillion yuan, with a daily average turnover of 741 billion yuan, a 24.3% increase from the previous year. Continued improvement in liquidity for top products. Looking at the distribution of turnover, there were a total of 23 products (20 in Shanghai) with a daily average turnover of over 1 billion yuan in the market, with 10 broad-based ETFs leading the way, including further increases in turnover for top products such as the CSI 300 ETF and the SSE 50 ETF, as well as 5 bond ETFs and cross-border ETFs. There were a total of 4 products with a daily average turnover of over 5 billion yuan, with record high turnover for short-term bond ETFs and policy bank bond ETFs. Increased dividends for ETFs improve investor satisfaction. In the first half of 2024, a total of 24 ETFs distributed dividends, totaling 5.38 billion yuan, with 20 ETFs in Shanghai distributed dividends totaling 5.21 billion yuan, mainly in broad-based ETFs, dividend-themed ETFs, and bond ETFs. In addition, efforts have been made to establish a stable dividend distribution mechanism, with the launch of the first quarterly mandatory dividend product, the Morgan Stanley China 50 ETF, to increase the stability and predictability of dividends and help investors practice long-term investment strategies. Narrowing divergence between ETF prices and net asset values. In the first half of 2024, the gap between ETF prices and net asset values in the overall market further narrowed, with a daily average price deviation of 0.0046 yuan for Shanghai ETFs, continuing to shrink from 2023. Looking at individual products, stock ETFs in Shanghai had the smallest deviation, with an average deviation of only 0.0006 yuan for broad-based ETFs; the pricing level of bond ETFs improved the most, with the average deviation decreasing from 0.52% in 2023 to 0.08%, and the deviation value dropping from 0.13 yuan to 0.05 yuan. II. Trading Characteristics of Different Types of Products In the first half of 2024, the turnover of various types of non-currency ETFs increased, with stock ETFs still accounting for nearly 40% of total turnover; single products of bond ETFs had the highest turnover, with daily average turnover for top products reaching nearly 100 billion yuan; cross-border ETFs saw the fastest growth in turnover, increasing from 16% to 19% of total turnover. Broad-based ETFs attracted medium and long-term funds. Broad-based ETFs continued to attract inflows, with a 49% increase in size reaching 1.24 trillion yuan by the end of 2023, including 950.9 billion yuan in Shanghai, attracting significant increases from medium to long-term investors. The participation of medium and long-term funds not only brought incremental funds to the ETF market, but also effectively boosted market liquidity. The daily average turnover for broad-based ETFs was 31.6 billion yuan, with 22.9 billion yuan in Shanghai, a 41% increase from 2023, breaking through 4 billion yuan for top products. State-owned enterprise ETFs performed well. As of the end of June 2024, the total size of domestic sector-themed ETFs exceeded 500 billion yuan, with a market size of 341.5 billion yuan in Shanghai, where individual investors held over 60%, making it the type with the highest proportion of individual holdings among all ETFs. In terms of market performance, state-owned enterprise-themed ETFs, as well as banking and energy-related industry-themed ETFs, showed strong performance. Emergence of bond ETF products exceeding 10 billion yuan. The size of bond ETFs increased to 109.9 billion yuan, with 91.2 billion yuan in Shanghai, accounting for over 80% and a 68% increase from the end of 2023. The number of billion-yuan products increased from 1 to 4. Average daily turnover increased from 14.7 billion yuan to 20.5 billion yuan, with daily average turnover exceeding 6 billion yuan for short-term bond ETFs and policy bank bond ETFs. The institutional holdings structure has gradually diversified, with entities such as corporate pensions increasing their allocations, and general collateral repurchase agreements becoming an important strategy for institutional investors. The turnover of dividend-themed ETFs more than doubled. In the first half of 2024, strategy ETFs represented by dividend-themed ETFs were favored by investors, with a total size exceeding 70 billion yuan, with institutional holdings accounting for over half. Insurance institutions were among the top ten holders of major products in the second quarter of 2024. In Shanghai, the scale of dividend-themed ETFs increased by over 56% to 56.7 billion yuan, with turnover increasing by over 120%. III. Funds Flow of Shanghai ETFs Three consecutive years of net inflows. In the first half of 2024, the total net inflow of non-currency ETFs in the domestic market was 461.7 billion yuan, reaching over 80% of the total net inflow in 2023, with Shanghai non-currency ETFs receiving a net inflow of 352.8 billion yuan. In recent years, ETFs have continued to see net inflows of funds, with the amount increasing year by year, and the accumulated net inflow of funds since 2021 has exceeded 1.5 trillion yuan. Increased investments in various types of ETFs. In the first half of 2024, all types of non-currency ETFs saw net inflows, with stock ETFs continuing the trend from 2023.The trend is that the net inflow reaches 388.6 billion yuan; bond ETFs receive a net inflow of 23.4 billion yuan, already reaching the level of the whole year of 2023; the net inflow speed of commodity ETFs and strategy ETFs has increased significantly, with the net inflow in the first half of the year reaching 3.5 times and 2 times the total for the whole year of 2023 respectively.The mainstream broad-based ETF saw the highest net inflows. Among the top ten ETFs with the most net inflows, there are a total of 8 broad-based ETFs, 1 bond ETF (Government and Investment Grade Bond ETF), and 1 gold ETF. Technology innovation ETFs continue to receive net inflows from institutional funds, maintaining the trend of net inflows from earlier, with total net inflows exceeding 100 billion yuan since 2022 and trading activity also significantly increasing, with daily trading volume tripling. IV. Fund Market Making Situation Shanghai ETF market makers have a high coverage rate. As of the end of June 2024, there are a total of 33 market makers in the Shanghai Stock Exchange fund market, including 19 primary market makers and 14 general market makers. A total of 557 ETFs are equipped with market makers, accounting for 98% of the total number of Shanghai ETF products, an increase of 33 from the end of 2023. In the first half of 2024, the transaction volume of market makers accounted for 29% of the total transaction volume of all market-making products, and the market makers' activity level has been increasing year by year, with a growth of approximately 3% compared to 2023. Shanghai ETFs are equipped with multiple market makers to provide liquidity services. The average number of market makers assigned to Shanghai ETFs is 6.52. The ETFs with the highest number of market makers are the CSI 1000 ETF Index and the Huaxia Shanghai and Shenzhen 300 ETF, each with 23 market makers. There are over 100 ETF products covered by 10 market makers in Shanghai, with the top five market makers covering 56% of the products, and the top ten market makers covering 84% of the products. The concentration of ETF market-making business is relatively high. The market-making function of Shanghai ETFs is effectively utilized. Firstly, the market-making mechanism effectively increases the trading activity of products. In the first half of 2024, ETFs with market makers had a daily turnover rate 4.9 times higher than those without market makers, providing convenience for investors' trading. Secondly, the market-making mechanism reduces the relative bid-ask spread of funds, improving pricing efficiency. The average relative bid-ask spread of ETFs without market makers was 0.144%, compared to only 0.1002% for ETFs with market makers. Thirdly, the market-making mechanism helps maintain stable fund prices, reducing price impact costs. The purchase and sell impact costs of ETFs without market makers in Shanghai were 0.87% and 1.35%, respectively, while those with market makers were 0.07% each. V. Outlook The new "National Nine Provisions" propose a strong development of equity public funds, significantly increasing the proportion of equity funds and establishing a fast-track approval process for trading open-ended index funds (ETFs) to promote the development of index-linked investments. With the increasing recognition of index-linked investment concepts by investors in recent years, ETFs are expected to play a more active role in attracting medium to long-term funds to the market, serving the real economy, and meeting residents' wealth management needs. In the next step, the Shanghai Stock Exchange will conscientiously implement the decision-making and deployment of the Central Committee, the relevant requirements of the new "National Nine Provisions," and under the overall guidance of the China Securities Regulatory Commission, continue to enrich the variety of ETFs, optimize the supporting mechanisms for ETFs, cultivate a good ETF ecosystem, and promote the high-quality development of the fund market.