As the first core broad-based index following the release of the new "Nine National Measures," the much-anticipated first batch of 10 CSI A500 ETFs was collectively listed on October 15th. According to the previously published listing announcement, the 10 CSI A500 ETFs raised a combined total of 20 billion yuan.

The launch of the A500 Index and related ETF products is not only expected to further enrich and improve China's broad-based index investment system, providing the market with diversified performance benchmarks and investment targets, but also the A500 Index is evenly distributed towards future industries, with a higher "newness quotient." The weight of new quality productive forces accounts for nearly 50%, with industry, information technology, communication services, and healthcare having a combined weight of nearly 50%, better meeting the development needs of industrial structure adjustment and the accelerated transformation of old and new drivers.

Against the backdrop of the collective listing of the CSI A500 Index ETF on October 15th, in fact, our Guotou Strategy team led by Lin Rongxiong was aware and proposed the "rise of passive long positions" relatively early. As early as June this year, in our external report, we distinctly proposed that equity ETFs are the most potential development direction and a clear source of incremental funds.

In August this year, in our special report, through in-depth observation of the significant pricing phenomenon in the banking sector, we again distinctly proposed that, unlike public utilities, the leading increase in the four major banks may not be fully explained by high dividends, but is more based on the situation of over-allocation of banks by more than 10% in the CSI 300 ETF + the low allocation by institutions + no significant selling pressure and other trading factors. A more accurate observation is the most intuitive pricing phenomenon brought about by the development of passive equity represented by the CSI 300 ETF in recent years.

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According to recently published statistical data, the total scale of ETFs in the A-share market has reached as high as 3.65 trillion yuan, with a total of 801 equity ETFs on the market, with a scale of 3.3 trillion yuan, accounting for nearly 80% of the entire ETF market. It took 16 years to break through the first 1 trillion yuan scale, only 3 years from 1 trillion yuan to 2 trillion yuan, and only 10 months to reach 3 trillion yuan.

Correspondingly, the scale of active investment in A-shares has continued to decline since its high in 2021, currently falling below 4 trillion yuan, roughly around 3.5 trillion yuan. These data not only reflect the rapid growth of China's equity ETF market but also reflect a significant change in the A-share investment ecosystem. Passive investment is experiencing an irreversible rise in the medium term, and this major trend will profoundly restructure the underlying investment philosophy of A-shares and will become the narrative of the largest capital chip level for a considerable period in the future.

For a considerable period in the past, there has been a view that the expansion of passive investment scale in recent years is often related to the choice of some important funds in a weak market environment.

In fact, since the significant rise on September 24th, the scale of incremental inflows into A-share ETFs has been huge, with a total of 241.1 billion yuan in net inflows into ETFs tracking A-share indices from September 24th to October 8th, indicating that the rise of passive investment is not caused by cyclical forces, but there is a clearer and stronger structural driving force behind it.

The new "Nine National Measures" clearly propose to vigorously promote the entry of medium and long-term funds into the market and to continuously strengthen the forces of long-term investment. The Central Financial Office and the China Securities Regulatory Commission recently jointly issued the "Guiding Opinions on Promoting the Entry of Medium and Long-term Funds into the Market," proposing that after a period of effort, the scale and proportion of medium and long-term funds invested will be significantly increased, and the investor structure of the capital market will be more rational.

Correspondingly, promoting the development of index investment, including ETFs, is an important means to build a "long money, long investment" policy system. According to the "Shanghai Stock Exchange ETF Industry Development Report (2024)," building a comprehensive index investment ecosystem and promoting the high-quality development of the ETF market include the following aspects:1. Enhance and strengthen broad-based ETFs, with flagship leading products continuously emerging;

2. Enrich the range of Science and Technology Innovation ETFs, serving the development of new quality productive forces;

3. Improve the layout of Central Enterprise ETF products, serving the strategy of state-owned capital and state-owned enterprise reform;

4. Enrich low-risk, stable-return products (such as dividend strategy ETFs), playing the role of inclusive finance;

5. Develop green-themed ETF products, serving green finance;

6. Enrich cross-border ETF products, optimizing cross-border interconnectivity mechanisms.

From the perspective of learning from overseas experience, the global ETF market has achieved rapid growth since the 2008 financial crisis. As of the end of June 2024, the total assets of ETFs (including ETPs) listed and traded worldwide reached $13.17 trillion, an increase of 13.44% compared to the end of 2023. Over the past 20 years, the average annual compound growth rate of the scale has exceeded 20%, and the number of products has maintained positive growth for 20 consecutive years.

Among them, equity ETFs still hold the dominant position, with a scale of $9.98 trillion as of the end of June 2024, accounting for 75.8% of the total global ETF scale; the scale of bond ETFs reached $2.16 trillion, accounting for 16.4%; the scale of commodity ETFs is about $196 billion, accounting for 1.5%; the scale of other types of ETFs is about $83.4 billion, accounting for 6.3%.

Looking at the development process of the U.S. market, as of the end of June 2024, the scale of ETFs in the U.S. market was $9.18 trillion, accounting for nearly seven-tenths of the global ETF market scale. Correspondingly, the proportion of index funds and ETFs in U.S. passive investment reached 48% of the fund market scale, and the scale of equity ETFs investing in domestic stocks exceeded $5 trillion. The average daily transaction volume of U.S. ETFs accounts for 30% of the transaction volume of the U.S. stock market.