China Embraces ETFs

by on September 4, 2009

While still evolving, the ETF industries in the U.S. and Europe are light years ahead of their counterparts in many emerging markets. ETF product offerings have expanded significantly in recent years, going beyond “plain vanilla” funds to cover increasingly complex investment strategies and exotic areas of the globe (see our Free Guide to ETFs for Very High Net Worth Individuals for a complete rundown of advanced ETF products).

But ETFs are certainly catching on in the rest of the world, a process likely to facilitate cross-border investments, expand fund options for foreign investors, and provide expansion opportunities for fund issuers. China’s efforts to develop and introduce global ETFs marks a watershed moment for both the ETF industry and Chinese markets. “A bigger, more mature fund industry can bring much needed stability to China’s volatile stock markets, and help fund growth of Chinese companies that traditionally rely on bank lending,” writes Rolfe Winkler.

The Shanghai Stock Exchange is currently developing a pilot program for global ETFs that would offer Chinese investors cheap, efficient exposure to overseas markets. Winkler notes that ventures of BlackRock, Deutsche Bank, and Invesco are likely to be among the first to launch global ETFs in China.

During the recent economic downturn, the Chinese government suspended the launch of many products that would allow citizens to invest overseas.As markets continue to rebound (many China ETFs have gained more than 50% in 2009), approvals are expected to begin again, an important step in the development of China’s equity markets and a major opportunity for ETF issuers to expand globally.